The Effects of Electricity Market Reform on Electricity Prices and the Power Plants’ Technology Mix: An Agent-Based Modelling Approach

Abstract

We develop an agent-based model to study the effects of the electricity market reform on the electricity prices, the power plants’ technology mix as well as their capacity utilization and profits. The reform’s main objective is to open the electricity market to more competition and increase the efficiency. The new wholesale electricity market will operate based on the one-day-ahead auctions organized by the independent system operator. We set up two scenarios in which the market clearing mechanism changes from the pay-as-bid to market clearing price (MCP) and the fuel subsidy to power plants will be removed. The effects of the two scenarios will be analyzed on the market prices, plant revenues, market shares, and power generating units’ capacities. The simulation results show that the electricity prices are higher during the peak load mainly due to the entry of the higher cost plants during those periods. Electricity prices are lower under the MCP scenario and higher under the fuel subsidy removal scenario, leading to lower and higher revenues for the power plants, respectively. The results also indicate that the market shares and the capacity utilization of the more efficient plants will increase under both scenarios.

Keywords

• electricity
• agent-based model
• power plants
• fuel subsidy
• market clearing mechanism