BIDDING BEHAVIOR IN THE CHILEAN ELECTRICITY MARKET

Contracts in power markets are usually obscure. From recently public auctions of long-term supply contracts we can obtain information on how contract prices are determined. To understand generators' bidding behavior, this paper examines the Chilean experience from 2006 to 2011. Using a divisible good auction model we provide a theoretical framework that explains bidding behavior in terms of expected spot prices and contracting positions. Empirical estimations indicate heterogeneity in the cost of over-contracting depending on incumbency, bringing evidence of significant barriers to entry.

1. Introduction

2. Description of the Chilean power system

3. Theoretical approach

4. Empirical estimations

5. Discussion