Edited by Joseph E. Harrington Jr and Yannis Katsoulacos
Chapter 15: Can Structural Models be Useful to Understand the Electricity Wholesale Markets? An Application to Spain
15. Can structural models be useful to understand the electricity wholesale markets? An application to Spain Vítor Marques, Adelino Fortunato and Isabel Soares1 15.1 INTRODUCTION The aim of this study is to analyse the behaviour of agents in the Spanish electricity market during the period January 1999 to June 2007 before the Iberian electricity market was started. Our main questions are: ● ● Did market power occur? What kind of long-term strategies have been adopted? The analysis is carried out in the framework of structural models. This framework is based on the causal relationships between related variables, explained by economic theory. They are, in general terms, expressed by the resolution of a system of equations, thus implying economic equilibrium. Structural models provide a heuristic approach about market economic relationships and they also allow for the answer to other questions, namely the calculation of the price elasticity of demand. Section 15.2 presents the organization of the Spanish wholesale market. The methodological approaches are presented in Section 15.3. This section includes the survey of the various methodological approaches, and presents the particularities used: the research is carried out through the structural model methodology, and the results are confronted with the direct estimations of the main variables. The structural model has two equations, one for demand and another for profit. The price elasticity of demand is estimated in Section 15.4 through the first equation. The behavioural factor is estimated in Section 15.5 through the profit maximization function. Section 15.6 concludes. 303 HARRINGTON PAGINATION (M2913)...
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