Did English Generators Play Cournot? Capacity Withholding in the Electricity Pool
Electricity generators can raise the price of power by withholding their plant from the market. We discuss two ways in which this could have affected prices in the England and Wales Pool. Withholding low-cost capacity which should be generating will raise energy prices but make the pattern of generation less efficient. This pattern improved significantly after privatisation. Withholding capacity that was not expected to generate would raise the Capacity Payments based on spare capacity. On a multi-year basis, these did not usually exceed “competitive” levels, the cost of keeping stations open. The evidence for large-scale capacity withholding is weak.
Keywords: Electricity prices, Cournot competition, capacity withholding
JEL Codes: L94