How good are supply function equilibrium models: an empirical analysis of the ERCOT balancing market |
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| Authors: | Ramteen Sioshansi Shmuel Oren |
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| Institution: | (1) Department of Industrial Engineeringand Operations Research, University of California at Berkeley, Berkeley, CA 94720, USA |
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| Abstract: | We present an empirical analysis of a supply function equilibrium model in the Texas spot electricity market. We derive conditions
for optimal bidding behavior in a spot market with ex ante bilaterally contracted sales. By estimating costs, we are able
to derive a set of ex post-and ex ante-optimal supply functions and use a non-parametric behavioral model to compare our theoretically
optimal supply functions to actual offers made. Our results show that with the exception of the largest generators, firms
make offers with markups and markdowns far in excess of what a model of profit-maximizing behavior suggests. |
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| Keywords: | Electricity markets Supply function equilibrium ERCOT Market power |
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