Supply Function Equilibrium with Taxed Benefits
K. Ruddell, A. B. Philpott, A. Downward
Operations Research · 2017 · Volume 65 · Issue 1
Abstract
Supply function equilibrium models are used to study electricity market auctions with uncertain demand. We study the effects on the supply function equilibrium of a tax, levied by the system operator, on the observed surplus of producers. Such a tax provides an incentive for producers to alter their offers to avoid the tax. We consider these incentives under both strategic and price-taking assumptions. The model is extended to a setting in which producers are taxed on the benefits accruing to them from a transmission line expansion (a beneficiaries-pay transmission charge). In this setting, we show how this tax may lead to lower prices in equilibrium.
Keywords
supply function equilibrium, energy policies, auctions
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