Published Online:

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.

INFORMS site uses cookies to store information on your computer. Some are essential to make our site work; Others help us improve the user experience. By using this site, you consent to the placement of these cookies. Please read our Privacy Statement to learn more.