SPOT MARKET COMPETITION IN THE UK ELECTRICITY INDUSTRY

At the core of the UK electricity industry is the wholesale spot market. The particular organisation of the electricity spot market makes standard oligopoly models inadequate, and we propose instead to model the market as a sealed-bid multiple-unit auction. Divided into five sections, section 1 presents the model. The model may be characterised as a first-price, sealed-bid, multiple-unit private-value auction with a random number of units. Section 2 characterises the Nash-equilibria of the model presented in section 1, describing low-, high-, and variable-demand periods. Section 3 presents empirical evidence on bidding behaviour in the UK electricity industry, looking at the structure of the UK industry, and generator bidding behaviour. Section 4 assesses an alternative pricing rule and discusses how offering to supply at marginal cost can be induced as a dominant strategy for each generator. Section 5 presents the conclusions. -from Authors