Incentive for withholding generator capacity and forewarning of electricity crisis

The pricing mechanism is very important for an electricity market. This paper is a study of the capacity withholding incentives and monitor under the marginal cost pricing mechanism in the wholesale electricity markets. An N-player Cournot game model is employed. The analytic solution of the uniform whithholding capacity is obtained under the condition that there is no increase of the generating capacity in the short period of the market, the market information for the government and the monitoring offices are complete, and the generation suppliers have linear marginal cost and different capacities. The solutions show that the withholding incentive always exists and the total withholding increases with the increase of Herfindahl-Hirschman index (HHI) and electricity demand. The analysis shows that every generator has a threshold level of market demand, below which there is no withholding, and above which the withholding is profitable. Based on the theory, we put forward the first, second and third forewarning levels of market demand to monitor the dispatch of withholding capacity in the electricity market. The HHI also affects these levels.