Interacting markets in electricity wholesale : forward and spot, and the impact of emissions trading.

Summary This thesis focuses on several aspects of wholesale electricity markets. The buying and selling of electricity is traded on the forward and day-ahead markets. In the day-ahead market, a very specific type of auction is used, where the bids of the players take the form of supply and demand functions. Chapter 2 takes as its starting point a result by Zachmann and von Hirschhausen (2008) who find an asymmetric response of the wholesale electricity price in Germany to changes in the price of tradable emission permits ( EUA ). However, in contradiction to the existing results, the asymmetry is shown to have disappeared following the publication of an investigation report by the competition authority. Chapter 3 focuses on the interaction of the futures and day-ahead markets in a repeated oligopoly game. The effect of the futures market on the stability of collusions is studied in the case where strategies in the spot market take the form of supply functions. It is shown that the mere existence of a futures market can widen the range of values of the discount factor for which collusion is sustainable. Chapter 4 examines whether an asymmetric response to the change in the C02 price is also present in the supply functions of the day-ahead electricity market. To this end, the tools of functional data analysis are adopted and applied to auction data. Chapter 5 develops a test for auto-correlation in a panel of functional observations. A Monte-Carlo simulation shows good power of the test in sample sizes typically used in applied research.