On the economic incentives of CBP market in Korean electricity wholesale market

We investigate four incentives in CBP(Cost Based Pool) market in the Korean electricity wholesale market: 1) incentive to over-report the variable cost, 2) incentive to withhold the generating capacity, 3) incentive to reduce the cost, 4) the possibility of optimal fuel mix. It is shown that an incentive to over-report the variable cost exists, market power can be exercised through capacity withholding, an incentive to reduce the cost is not fully provided, and finally in case of two kinds of fuels, optimal fuel mix can be attained in the long-run equilibrium. But with more than two kinds of fuels, optimal fuel mix cannot be guaranteed in the long-run equilibrium.