Strategic forward contracting under different competition modes in electricity markets

Power generating firms´ forward contract sales have strategic impacts on the competition outcomes of electricity spot markets. It is possible that these strategic impacts could also give rise to another incentive for generating firms to sign forward contracts. Strategic forward contracting induced by this incentive is examined under different competition modes in an electricity spot market with asymmetric, multiple strategic generating firms. Theoretic analysis shows that if each generating firm takes as fixed the other firms´ contract positions when making its own forward contracting decision, then under Cournot-type competition in the spot market, each rational firm would voluntarily take part in the strategic contracting, while under long-lived linear supply function(LSF)-type competition in spot markets, the incentive to strategic contracting will be lost for each firm. A numerical example is used to verify theoretical results.