Publications

Working papers

July 2001

Dynamic investment in electricity markets and its impact on system reliability

An MIT Energy Laboratory Publication

Abstract

In this paper we view the problem of adequate electricity supply and demand as a dynamic process affected by several fundamental factors. By incorporating the effect of the available price signals on investment decisions we model the investment dynamics for (i) a system comprising both spot and futures (forward) markets, and for (ii) a system comprising a spot and an installed capacity (ICAP) market. In particular, we analyze the effect of timing of price information available on the dynamics of long-term supply/demand and price evolution. It is shown how by having a futures market, investment decisions to add new capacity could be executed without much delay while the investors are guaranteed revenues through long-term futures (forward) contracts. The modeling and simulations are performed using aggregate long-term price models.

Research Areas

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