Investment Under Uncertain Investment Policy In Oligopoly Generation Power Market

With the further reform of marketing structural of power industry, powergeneration market of China realized competition model with multi-oligopolies, andpower price is partially bidden and partially determined by country’s relatedregulation. So the investment risk of oligopoly generations is affected by powerdemands and the contract price regulated by country which made them more prudentwhen making decisions. As the electrical power is not only the essential agent ofproduction but also the necessities of people’s daily life, insufficient or surplusinvestment of electrical power will make a huge economic and social loss. Therefore,it’s significant to investigate that how political changes influence investingstrategies of oligopoly generations.This paper made an empirical analysis with data of price and quantity ofelectrical power of spot market in Northern Europe. it evaluated the parameter ofelasticity of power demand with maximum likelihood method, and made acomparative analysis base on assessments of two stochastic processes of arithmeticbrown motion and geometric brown motion, the empirical result shows thatgeometric brown motion is more reasonable for of power elastic demandparameter θ. What’s more, based on real option theory, we built an oligopolygenerations’ investing model under the certainty of policy by taking in considerationof power producers’ quadratic cost function and power bidding function and theTwo-system(Contraction of price difference and surf the Net at a competitive price)of power price of China. Furthermore, we introduced in the variable of investingsubsidy policy which was describing by Possion motion to discuss oligopolygenerations’ investing strategy under politic uncertainty in order to find out whethergenerations decide to wait or to invest immediately. All the simulation andcalculation was done by Matlab software.The conclusion of this paper is as follows. Firstly, under the certainty of policy,contracted quantity and price of electrical power would have a great and complicateimpact on investment threshold value, and appropriate contracted quantity or pricepower would increase the oligopoly generation’s investment threshold valueimmediately. What’s more, investment threshold value is also positively affected bynumber of power producers and demand fluctuation ratio while less positively affected by investing cost and transmission cost. Secondly, under the uncertainty ofpolicy, investment subsidy policy would have impact on the choice of oligopolygenerations whether to wait or to invest immediately. If investment subsidy policy isimplemented, the waiting threshold of oligopoly generations would decrease whilethe investing threshold would increase. If investment subsidy policy is notimplemented, the waiting threshold of oligopoly generations would increase whilethe investing threshold would decrease. As a result, the optimal threshold willchange with the probability of implementing subsidy policy.