A comparison between perfectly and imperfectly competitive downstream electricity markets under the effect of upstream fuel market price

Upstream fuel markets can affect the production strategies of power producers, and further the market equilibrium, as well as the social welfare. In this paper, we present a study on the impacts of fuel price on electricity market in perfect and imperfect competitive environments. The differences between the power producers´ strategies, and benefit transference among different market participants under the effect of fuel price are investigated and compared. It is found that fuel-dependent power producers´ production responses with respect to the fuel price are similar in these two competition markets, but the incentives are very different. Moreover, the production strategies of non-fuel-dependent power producers have different effects on the fuel producer´s profit. In addition, we show that the essence of the upstream fuel market´s impact on the social welfare in the downstream electricity market is benefit transference among the producers, as well as between the producers and consumers.