Supply Function Equilibrium with Taxed Benefits

Abstract

Supply function equilibrium models are used to study electricity market auctions with uncertain demand. We study the effects on the supply function equilibrium of a tax, levied by the system operator, on the observed surplus of producers. Such a tax provides an incentive for producers to alter their offers to avoid the tax. We consider these incentives under both strategic and price-taking assumptions. The model is extended to a setting in which producers are taxed on the benefits accruing to them from a transmission line expansion (a beneficiaries-pay transmission charge). In this setting, we show how this tax may lead to lower prices in equilibrium.

How Elastic Demand Affects Bidding Strategy in Electricity Market: An Auction Approach

“…Therefore, elasticity of demand is an effective means to restrain the market power of generators. This conclusion is similar to the results in Ruddell's research [26], who indicated that price-responsive demands are realized to efficiently exploit the available electricity resources.…”

“…Auction approaches avoid initial estimations and the time limit of simulation technology. The existing researches related to bidding strategies by auction models, always concentrate on bidding behaviors based on the assumption that demand is fixed and inelastic [20][21][22][23][24][25][26][27][28], which does not always hold in practice, especially in the market-oriented market. For instance, Hao [20] modeled bidding behaviors and assumed that demand, which is known to all electricity generators, was fixed.…”

How Elastic Demand Affects Bidding Strategy in Electricity Market：An Auction Approach

“…Therefore, elasticity of demand is an effective means to restrain the market power of generators. This conclusion is similar to results Ruddell K's research [26], who indicated that price-responsive demands is realized to efficiently exploit the available electricity resources. Proposition 3.…”

“…In addition, we show that price-responsive market demand is effective ways to restrain generators market power than inelastic market demand. The conclusions reached coincidently to Ruddell K's research [26].…”

“…Auction approach avoids initial estimations and time limit of simulation technology. The existing researches related to bidding strategies by auction models, always concentrate on bidding behavior based on the assumption that demand is fix and inelastic [20][21][22][23][24][25][26][27][28], which does not always hold in practice, especially in the market-oriented market. For instance, Hao [20] models bidding behavior and assumes that demand, which is known to all generation companies, is fixed.…”