Modeling the competition on the electricity stock market

A model of competition on the electricity stock market is constructed using Cournot’s competition model and the supply function equilibrium (SFE) model. The main distinctive features of the electricity markets are discussed. The models are then applied to a market with the participation of four manufacturers (a nuclear power plant (NPP) and three coal plants). A specific demand function which gives a good description of the market characteristics is formulated and an estimation is made to determine the marginal costs for producers. Three scenarios are presented in order to demonstrate the applicability of the models used and to shed light on the effects of the changing market environment on prices and market structure. The transmission and distribution losses and the capacity constraints of the manufacturers are not covered.