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Computable Equilibrium Models and the Restructuring of the European Electricity and Gas Markets

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  • Yves Smeers
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    Abstract

    More regulation, not less, is temporarily necessary, if effective, competition is to be established in network industries. This paradox places new requirements on computable models: they should provide realistic descriptions of technologies but also of markets and institutions. Industrial economics and computation of economic equilibrium can help achieve this dual requirement. This paper discusses their potential in the context of the deregulation of the European gas and electricity sectors. Some key elements of the European legislative process are first presented in order to point out the diversity of institutions that can emerge and to highlight the need to model institutions. Perfect competition equilibrium models although institutionally poor are argued to be useful for ex post analysis. Applications of the standard Cournot and' Bertrand paradigms in ex ante analysis of gas and electricity markets are reviewed next. Models combining market power and externalities are then discussed with reference to electricity restructuring. Finally multistage equilibrium models are introduced in the context of investment in gas and electricity. Computation remarks conclude the paper.

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    Bibliographic Info

    Article provided by International Association for Energy Economics in its journal The Energy Journal.

    Volume (Year): Volume18 (1997)
    Issue (Month): Number 4 ()
    Pages: 1-31

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    Handle: RePEc:aen:journl:1997v18-04-a01

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    Cited by:
    1. Hobbs, B.F. & Rijkers, F.A.M., 2005. "The More Cooperation, the More Competition? A Cournot Analysis of the Benefits of Electric Market Coupling," Cambridge Working Papers in Economics 0509, Faculty of Economics, University of Cambridge.
    2. Twomey, P. & Green, R. & Neuhoff, K. & Newbery, D., 2005. "A Review of the Monitoring of Market Power The Possible Roles of TSOs in Monitoring for Market Power Issues in Congested Transmission Systems," Cambridge Working Papers in Economics 0504, Faculty of Economics, University of Cambridge.
    3. Bonacina, Monica & Gulli`, Francesco, 2007. "Electricity pricing under "carbon emissions trading": A dominant firm with competitive fringe model," Energy Policy, Elsevier, vol. 35(8), pages 4200-4220, August.
    4. Munksgaard, Jesper & Ramskov, Jacob, 2002. "Effects of internalising external production costs in a North European power market," Energy Policy, Elsevier, vol. 30(6), pages 501-510, May.
    5. Breton, Michele & Zaccour, Georges, 2001. "Equilibria in an asymmetric duopoly facing a security constraint," Energy Economics, Elsevier, vol. 23(4), pages 457-475, July.
    6. Ventosa, Mariano & Baillo, Alvaro & Ramos, Andres & Rivier, Michel, 2005. "Electricity market modeling trends," Energy Policy, Elsevier, vol. 33(7), pages 897-913, May.
    7. Jan Abrell & Hannes Weigt, 2012. "Combining Energy Networks," Networks and Spatial Economics, Springer, vol. 12(3), pages 377-401, September.
    8. Neuhoff, Karsten & Barquin, Julian & Boots, Maroeska G. & Ehrenmann, Andreas & Hobbs, Benjamin F. & Rijkers, Fieke A.M. & Vazquez, Miguel, 2005. "Network-constrained Cournot models of liberalized electricity markets: the devil is in the details," Energy Economics, Elsevier, vol. 27(3), pages 495-525, May.
    9. Franziska Holz & Philipp M. Richter & Ruud Egging, 2013. "The Role of Natural Gas in a Low-Carbon Europe: Infrastructure and Regional Supply Security in the Global Gas Model," Discussion Papers of DIW Berlin 1273, DIW Berlin, German Institute for Economic Research.
    10. Berry, Carolyn A. & Hobbs, Benjamin F. & Meroney, William A. & O'Neill, Richard P. & StewartJr, William R., 1999. "Understanding how market power can arise in network competition: a game theoretic approach," Utilities Policy, Elsevier, vol. 8(3), pages 139-158, September.
    11. Rajnish Kamat & Shmuel Oren, 2004. "Two-settlement Systems for Electricity Markets under Network Uncertainty and Market Power," Journal of Regulatory Economics, Springer, vol. 25(1), pages 5-37, January.
    12. Dorigoni, Susanna & Graziano, Clara & Pontoni, Federico, 2010. "Can LNG increase competitiveness in the natural gas market?," Energy Policy, Elsevier, vol. 38(12), pages 7653-7664, December.
    13. Banfi, Silvia & Filippini, Massimo & Mueller, Adrian, 2005. "An estimation of the Swiss hydropower rent," Energy Policy, Elsevier, vol. 33(7), pages 927-937, May.
    14. Florian Leuthold & Hannes Weigt & Christian Hirschhausen, 2012. "A Large-Scale Spatial Optimization Model of the European Electricity Market," Networks and Spatial Economics, Springer, vol. 12(1), pages 75-107, March.
    15. Gnansounou, Edgard & Dong, Jun, 2004. "Opportunity for inter-regional integration of electricity markets: the case of Shandong and Shanghai in East China," Energy Policy, Elsevier, vol. 32(15), pages 1737-1751, October.

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