Open Access Te Herenga Waka-Victoria University of Wellington
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Essays on the Interaction Between Risk and Market Structure in Electricity Markets

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posted on 2023-03-14, 23:29 authored by Fiuza de Braganca, Gabriel Godofredo

This thesis proposes a new framework to jointly analyze electricity spot market and hedging decisions in an oligopolistic setup. Firstly, we find that, when exogenous, both quantity of electricity hedged by contract and vertical integration decrease the equilibrium spot price. Secondly, we use a hybrid approach and show that market structure can affect a generator’s decision to vertically integrate under uncertain demand. Thirdly, we consider uncertainty in costs and demand and show that concentration in the spot market, for a given hedge quantum, can increase forward prices and affect the slope of the forward curve. Our empirical results indicate that the model fits the New Zealand electricity market well. This evidence that market structure and hedging decisions are closely connected is further explored in a three period equilibrium model for the spot and forward markets, where hedging occurs prior to the submission of supply curves. Taking into account demand-side and supply-side uncertainties, we find that when hedging is endogenous, hedging quantities are affected by spot market parameters, but market power is itself mitigated in the conscious hedging choice of generators. We also show that forward markets can coexist with highly vertically integrated markets. The importance of our results is general. Our models can be used by policy makers to analyze investment and forward price implications of changes in the spot market structure. Our results also indicate that electricity generators, in equilibrium, face a trade-off between market power and hedging. Given that it is socially beneficial to manage risk, the equilibrium impact of their choices on welfare should not be considered in isolation by competition authorities.


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Date of Award



Te Herenga Waka—Victoria University of Wellington

Rights License

Author Retains Copyright

Degree Discipline


Degree Grantor

Te Herenga Waka—Victoria University of Wellington

Degree Level


Degree Name

Doctor of Philosophy

Victoria University of Wellington Item Type

Awarded Doctoral Thesis



Victoria University of Wellington School

School of Economics and Finance


Evans, Lew; Daglish, Toby