Cyclic behavior in dynamic investment decisions for deregulated energy markets

In the first years after the deregulation of the electricity industry, investment into new generation capacity has not taken place on a large scale in any central European country. Recent increases in prices indicate that investment could be very profitable. However, the fear is that the need for new capacity can be overestimated and that could lead to a decrease in prices and profits and consequently to a reduction/stop of new investments. The aim of this paper is to model and analyze factors that influence the stability of electricity prices. The electricity market is modeled using a Cournot game and the stability of electricity prices is analyzed by simulations.