Abstract
ABSTRACT Market simulation, based on structural characteristics, is a useful tool for ex-ante competition analysis of major market changes, such as: market liberalization, mergers and acquisitions, divestitures, and regulatory reforms. In this paper, Cournot-Nash simulation is used to evaluate the expected market equilibrium if the Brazilian electricity market were liberalized. A sensitivity analysis is utilized to evaluate how the market equilibrium is impacted by different factors, such as: different demand price elasticities, divestiture of the dominant market player, different initial equilibrium point and different hydro inflow scenarios.
Highlights
Market simulation, based on structural characteristics, is a useful tool for ex-ante competition analysis of major market changes, such as: market liberalization, mergers and acquisitions, divestitures, and regulatory reforms
Modeling the grouping of these small shareholders as a single player would overestimate their market power. These market players most likely behave as price-takers, they have been modeled as arbitrating between periods shifting as much supply as possible to the period that provides the best price, bounded by their reservoir storage capacity limitations
A series of simulations were conducted to evaluate market equilibrium if bid-based dispatch and pricing were adopted in Brazil
Summary
Market simulation, based on structural characteristics, is a useful tool for ex-ante competition analysis of major market changes, such as: market liberalization, mergers and acquisitions, divestitures, and regulatory reforms. Cournot-Nash simulation is used to evaluate the expected market equilibrium if the Brazilian electricity market were liberalized. A sensitivity analysis is utilized to evaluate how the market equilibrium is impacted by different factors, such as: different demand price elasticities, divestiture of the dominant market player, different initial equilibrium point and different hydro inflow scenarios. Competition analysis is typically based on own and cross-price elasticities estimates determined from historical market data. In the past few decades policymakers in many jurisdictions have undertaken regulatory reforms to unbundle electricity provision to enable market provision of power generation, while maintaining regulated prices for the remaining services (transmission, distribution and ancillary services)
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