Market power on the power market

Withholding a basic load generator can be profitable

The presentation ‘Reliability Concepts and Market Power’ of Professor Fernando L. Alvarado (University of Wisconsin) illustrates a few of the complex phenomena that occur on the electrical power market. In it, he discusses the interactions between the number of utility companies, power demand, power price, and cost recovery possibilities for a utility company.

It makes the assumption that suppliers have two generator technologies: one cheap to cover basic power demand, and one expensive to cover peak demand. The presentation shows how, under certain circumstances, utility companies can withhold a basic load generator to push up prices to peak demand values. This is especially profitable if the local market has a small number of suppliers. Professor Alvarado’s presentation gives a detailed insight into these market mechanisms.