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Uniform-Price Auctions in Electricity Markets

dc.contributor.authorCramton, Peter
dc.contributor.authorStoft, Steven
dc.date.accessioned2007-08-07T13:47:30Z
dc.date.available2007-08-07T13:47:30Z
dc.date.issued2006-03-20
dc.identifier.citation"Uniform-Price Auctions in Electricity Markets," (with Steven Stoft), Electricity Journal, 20:1, 26-37, 2007.
dc.identifier.urihttp://hdl.handle.net/1903/7055
dc.description.abstractWholesale electricity markets are commonly organized around a spot energy market. Buyers and suppliers submit bids and offers for each hour and the market is cleared at the price that balances supply and demand. Buyers with bids above the clearing price pay that price, and suppliers with offers below the clearing price are paid that same price. This uniform-price auction, which occurs both daily and throughout the day, is complemented by forward energy markets. In practice, between 80 and 95 percent of wholesale electricity is traded in forward energy markets, often a month, or a year, and sometimes many years ahead of the spot market. However, because forward prices reflect spot prices, in the long run, the spot market determines the total cost of energy. It also plays a critical role in the least-cost scheduling and dispatch of resources, and provides an essential price signal both for short-run performance and long-run investment incentives. Arguments that the uniform-price auction yields electricity prices that are systematically too high are incorrect. However, insufficiently hedged spot prices will result in energy costs that fluctuate above and below the long-run average more than regulated prices and more than is socially optimal. Tampering with the spot price would cause inefficiency and raise long-term costs. The proper way to dampen the impact of spot price fluctuations is with long-term hedging. Although re-regulation can provide a hedge, there are less costly approaches.en
dc.format.extent156001 bytes
dc.format.mimetypeapplication/pdf
dc.language.isoen_USen
dc.publisherElsevier Science
dc.subjectClearing Priceen
dc.subjectElectricity Marketsen
dc.titleUniform-Price Auctions in Electricity Marketsen
dc.typeArticleen
dc.relation.isAvailableAtDigital Repository at the University of Marylanden_us
dc.relation.isAvailableAtEconomics Departmenten_us
dc.relation.isAvailableAtCollege of Behavioral and Social Sciencesen_us
dc.relation.isAvailableAtUniversity of Maryland (College Park, Md.)en_us
dc.rights.licensehttp://www.electricity-online.com/journal.html


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