Study on Price Cap Setting Based on Economic Withholding and Supply-demand Relationship

Though of great value in avoiding risk of electricity market price soaring, yet no systematic theory and method have been achieved in price cap setting at present Single fixed price cap neither can sprit up the enthusiasm of market participants in sufficient supply market circumstance, nor can restrict market participants to abuse market power in tensional supply market circumstance. Hence, this paper introduced a new price cap setting method, which adjust price cap automatically with supply-demand relationship and evaluation index of market power. According to this method, price cap would arise so as to allow market clear price to be decided by competition when market supply was sufficient and no market power was abused, while it would decline when market supply was not sufficient or economic withholding was severe. Analysis indicates that the price cap setting method not only can avoid finical risk induced by market clear price soaring, but also not distort economic signal of fully competition electricity market.