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No D/845: Selecting effective divestments in electricity generation markets

Giulio Federico () and Angel Lopez
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Giulio Federico: IESE Business School, Postal: Research Division, Av Pearson 21, 08034 Barcelona, SPAIN
Angel Lopez: IESE Business School, Postal: Research Division, Av Pearson 21, 08034 Barcelona, SPAIN

Abstract: We study the impact of electricity divestments in a stylised model where a dominant producer faces a competitive fringe with the same cost structure and is forced to sell some of its capacity. For a given demand level, the divestment which achieves the greatest reduction in prices can be several times more effective in reducing prices than a divestment of base load (or low-cost) plants. We extend this theoretical result to the case with variable electricity demand by considering a numerical example based on data from the Italian market.

Keywords: Divestments; market power; electricity; antitrust remedies

20 pages, February 3, 2010

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