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Energies 2018, 11(12), 3420; https://doi.org/10.3390/en11123420

The Impact of Behavioral and Structural Remedies on Electricity Prices: The Case of the England and Wales Electricity Market

Department of Economics, Management and Humanities, Faculty of Electrical Engineering, Czech Technical University in Prague, Technická 2, 166 27 Prague 6, Czech Republic
Received: 7 November 2018 / Revised: 29 November 2018 / Accepted: 4 December 2018 / Published: 6 December 2018
(This article belongs to the Section Energy Economics and Policy)
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Abstract

During the liberalization process the UK regulatory authority introduced a behavioral remedy (through price-cap regulation) and structural remedy (through divestment series) in order to mitigate an exercise of market power and lower the influence of incumbent producers on wholesale electricity prices. We study the impact of these remedies on the dynamics of the wholesale electricity price during the peak-demand period over trading days. An extended autoregressive and autoregressive conditional heteroscedasticity (ARARCH) model with a novel skew generalized error distribution is used. This distribution allows one to capture the features of asymmetry, excess kurtosis, and heavy tails. The model is extended to include individual incumbent producers’ market shares and other explanatory variables reflecting seasonal patterns and regulatory regimes. We find that the structural remedy was more successful than the behavioral remedy because the effect of market share of the previously larger incumbent producer on the wholesale price is statistically insignificant. Moreover, after the second series of divestments, price volatility reduced. View Full-Text
Keywords: electricity price; uniform price auction; skew generalized error distribution; conditional volatility; regulation electricity price; uniform price auction; skew generalized error distribution; conditional volatility; regulation
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Tashpulatov, S.N. The Impact of Behavioral and Structural Remedies on Electricity Prices: The Case of the England and Wales Electricity Market. Energies 2018, 11, 3420.

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