Resumen de Bidding in a Pool with Contract Market

Beatriz De Otto

• We study the rational for buying electricity by means of forward agreements even in absence of risk aversion. Contracting is profitable for a buyer of electricity because it reduces the seller�s incentive to manipulate up the prices in the spot market. In a symmetric equilibrium with contracting all the generators contract and ask prices which are less than in a symmetric equilibrium without contract market. A generator is willing to contract only if the contract price is greater than the expected spot market price given the equilibrium bidding functions. We prove that there is a set of contracts satisfying this condition which, however, are such that the cost of electricity for the buyer is less than without contracting.

  More interesting, we show that when contracts are for a quantity which is large enough, then the price that any generator asks at equilibrium is less than the cost of production for this generator. Indeed, beyond reducing the incentive to push the spot prices up, contracts to supply means that generators need becaming buyers in the spot market unless they manage to be dispatched.