Price Spikes in Electricity Markets: A Strategic Perspective

Abstract

This paper aims to analyze the issue of price spikes in electricity markets through the lens of noncooperative game theory. The case we consider is Australia’s long established National Electricity Market (NEM). Specifically, we adapt von der Fehr and Harbord’s multi-unit auction model to settings that more closely reflect the structure of the NEM, showing that price spikes can be related to a specifiable threshold in demand.Electricity Markets, Spot Price Behaviour, Non-Cooperative Game Theory.