Market Power Mitigation in Electricity Markets: A Framework for Making Choices (original) (raw)
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Market Power Mitigation Mechanisms for Wholesale Electricity Markets: Status Quo and Challenges
2021
Market power has been a persistent challenge in designing wholesale electricity markets. Differences in the number or configuration of pricing zones does not impact the ability of a supplier to exercise unilateral market, but only what market outcomes are impacted by this exercise of market power. For this reason, tools able to detect market power conditions are crucial for ensuring the well functioning of all wholesale electricity markets, regardless of number of pricing zones. We first describe the trade-offs that must be balanced in designing a market power mitigation mechanism for any shortterm wholesale electricity market. This is followed by a survey of the market power mitigation mechanisms that currently exist in the California Independent System Operator (ISO), the PJM Interconnection, the New York ISO, Mid-Continent ISO, and Electricity Reliability Council of Texas (ERCOT). Finally, we draw lessons from the US experience and try to address potential issues in the adoption ...
Monitoring and Measuring Market Power in the New Zealand Electricity Market
2008 Joint International Conference on Power System Technology and IEEE Power India Conference, 2008
The New Zealand electricity market has a small number of generators with apparently dominant market shares. The ability of market participants to exercise market power in the wholesale market is questioned at any time wholesale electricity spot prices are perceived to rise beyond the perceived cost of production for electricity.
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Energy Economics, 2005
This paper focuses on measuring the extent to which market power has been exercised in a recently deregulated electricity generation sector. Our study emphasises the need to consider the concept of market power in a long-run dynamic context. A market power index is constructed focusing on differences between actual market returns and long-run competitive returns, estimated using a programming model devised by the authors. The market power implications of hedge contracts are briefly considered. The state of Queensland Australia is used as a context for the analysis. The results suggest that generators have exercised significant market power since deregulation. D
Electricity market reform: so what’s new?
Policy and Politics, 2016
The British government has restructured Britain's electricity markets through a programme of Electricity Market Reform (EMR). Energy security and climate change mitigation are public goods that are prioritised. Cultural theory (CT) is used to explain changes in the regulatory regime under EMR. EMR involves an incomplete shift from 'individualist' to 'hierarchical' frames of regulation. Conflicts between these frames hamper the institutional design of EMR. This has obstructed deployment of nuclear power. Policymakers must fit the cultural framing to suit their preferred public good and not expect a defined public good to emerge from a preferred mix of cultural bias.
2019
The National Electricity Market, a wholesale market covering Australia's southern and eastern states, commenced operation in 1998. Though the market has long been considered a successful part of Australia's energy market reforms, econometric analysis finds that coal generation closure in 2017 delivered an unexpected price shock in wholesale markets. Further analysis finds that average prices received by the coal-fired generators when coal generators set the clearing prices, more than doubled in the year after closure compared to the previous year. These increased spot market revenues collected by the coal generators by $3.47 billion from what they would have been if generator bids before closure had prevailed. We propose a model of oligopolistic competition to explain the price outcomes. After examining the impact of higher coal prices and possible exogenous coal supply constraints, we conclude that the change in generator bids in the spot market is consistent with the optimal markup rule in our model. We find that the entity that exercised the market power was able to increase its wholesale market profits by 60% and was able to substantially pass on wholesale price increases in the prices they charged their customers. We suggest this is typical of outcomes across the market, and thus the exercise of market power has had a large impact on consumers and producers, economic efficiency and the environment. The conclusions raise concerns about supply-side market concentration, and also about the design, operation and oversight of the wholesale market. This merits serious consideration not least in the context of future coal generation closure.
Lessons in Electricity Market Reform: Regulatory Processes and Performance
Social Science Research Network, 1998
Electric power developers considering global investment opportunities and risks must consider how a regulatory regime will shape and constrain decisions related to prices, returns, and other variables. Successful regulators will seek to promote credibility with investors and a sense of fairness in the eyes of the public, while delivering greater efficiency for the economy as a whole.
Two Essays on Problems of Deregulated Electricity Markets
2004
The data from California energy crisis of 2000 suggests that the largest departures of observed electricity prices from the estimates of the competitive price occur when demand approaches market capacity. This paper studies models of unilateral and collusive market power applicable to electricity markets. Both suggest a unique mechanism explaining the increase of the price-cost margin with demand. The empirical test of these models provides more evidence for unilateral market power than for behavior suggesting tacit collusion. JEL Codes: C71, C72, L11, L13, L94
Market Power in Power Markets: The Case of French Wholesale Electricity Market
Energy Studies Review, 2015
The French wholesale market is set to expand in the next few years under European pressures and national decisions. In this paper, we investigate the performance of the French wholesale power market to examine whether or not the equilibrium outcomes are competitive. After a literature review on the different existing models, an extension of the Bresnahan - Lau (1982) method in panel data framework is employed with hourly dataset during 2009-2012 on the French wholesale market. The model-based results suggest that though market power is found statistically significant in several peak-load hours, it stays at very low level. On average, no market power is exercised over the examined period. These results correspond with the extremely regulated wholesale power market in France. It is of high interest given the future evolution of the French wholesale market which will be among the biggest in Europe in 2016 after the end of regulated tariffs for all firms.
Should market power still be a concern in the U.S. electric power industry?
The Electricity Journal, 2020
This paper examines entry into new generation supply in the United States. It finds that entry into new generation is typically small scale and accomplished by companies with below average market shares. The construction of new generation facilities is also strongly associated with generation retirements. This evidence suggests that in most of the United States there is little ability for long-term market power in electric generation.