Archives

1
Sep

Strategic Storage and Market Power in the Natural Gas Market

Laure Durand-Viel In a competitive setting, storage is traditionally used to smooth production costs or face demand variations. However, oligopolistic sellers can also use inventories as a commitment tool. We analyze strategically motivated storage in a model where, as in the European gas market, both producers and suppliers have market power. In this two-tier oligopolistic structure, storage allows suppliers not only to preempt future demand, but also to counter producers' market power.This, in Read more [...]

1
Jan

Valuation of a Power Plant Under Production Constraints and Market Incompleteness

Arnaud Porchet, Nizar Touzi, Xavier Warin This paper presents a real option valuation model of a power plant, which accounts for physical constraints and market incompleteness. Switching costs, minimum on-off times, ramp rates, or non-constant heat rates are important characteristics that can lead, if neglected, to overestimated values. Existence of non-hedgeable uncertainties is also an important feature of energy markets whose impact on assets value is often neglected. We use the utility indifference Read more [...]

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