Strategic bidding and spot price in the national electricity market / Joseph Mullins.

Mullins, Joseph. (2008). Strategic bidding and spot price in the national electricity market / Joseph Mullins. Honours Thesis, School of Economics, The University of Queensland.

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Author Mullins, Joseph.
Thesis Title Strategic bidding and spot price in the national electricity market / Joseph Mullins.
School, Centre or Institute School of Economics
Institution The University of Queensland
Publication date 2008
Thesis type Honours Thesis
Total pages 87
Language eng
Subjects 14 Economics
Formatted abstract
In this thesis we look at the behaviour of spot prices in the National Electricity Market (NEM) through the lens of non-cooperative game theory. We begin by examining the range of theory for electricity auctions. We prove some original results regarding the relationship between two competing modelling frameworks; the Supply Function Equilibrium model and the multi-unit auction. We give a more general treatment of these models than has been seen in the literature, proving for example the existence of equilibria in both types of game. With help from this general theoretical approach, we are able to build an auction model that fits the characteristics of the NEM.

We use equilibrium analysis of this model to assemble a series of predictions regarding spot price behaviour relative to movements in demand. Chiefly, we establish that price spikes are related fundamentally with a critical threshold in demand. We examine the predictions of this model against observed strategic behaviour and show that bidding and price patterns meet the general properties suggested by the theory. We find that electricity prices do in fact display the threshold properties suggested by the model, and do so convincingly. In this way we are able to shine some theoretical light on the strategic events behind price spikes and spot price behaviour more generally. We conclude that our game-theoretic model has compelling explicative properties and is a useful tool for interpretation of price events. This is a significant contribution to the literature, particularly that aimed at the NEM, which has hereto been lacking in the use of theoretic models for analysis. Our conclusions in turn open up several promising avenues for future research.

Keyword .

Document type: Thesis
Collection: UQ Theses (non-RHD) - UQ staff and students only
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Created: Tue, 30 Nov 2010, 09:32:55 EST by Ning Jing on behalf of The University of Queensland Library