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The More Cooperation, The More Competition? A Cournot Analysis of the Benefits of Electric Market Coupling

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  • Benjamin F. Hobbs
  • Fieke A.M. Rijkers
  • Maroeska G. Boots

Abstract

If barriers between two power markets are eliminated, what might happen to competition and prices? And who benefits? In the case of the Belgian and Dutch markets, market coupling would permit more efficient use of transmission by improving access to the Belgian market, by counting only net flows against interface limits, and by eliminating mismatches in timing of interface auctions and energy spot markets. We estimate the benefits associated with the first two of these impacts using a transmission-constrained Cournot model. Social surplus improvements on the order of 108 Û/year are projected, unless market coupling encourages the largest producer in the region to switch from price-taking in Belgium to a Cournot strategy due to a perceived diminished threat of regulatory intervention. Whether Dutch consumers would benefit also depends on that companyÕs behavior. The results illustrate how large-scale oligopoly models can be used to assess changes in market designs.

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Bibliographic Info

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

Volume (Year): Volume 26 (2005)
Issue (Month): Number 4 ()
Pages: 69-98

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Handle: RePEc:aen:journl:2005v26-04-a05

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  1. Newbery, D. & Tanga McDaniel, 2002. "Auctions and trading in energy markets -- an economic analysis," Cambridge Working Papers in Economics 0233, Faculty of Economics, University of Cambridge.
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Cited by:
  1. Malaguzzi Valeri, Laura, 2009. "Welfare and competition effects of electricity interconnection between Ireland and Great Britain," Energy Policy, Elsevier, vol. 37(11), pages 4679-4688, November.
  2. Leonardo Meeus, 2010. "Implicit Auctioning on the Kontek Cable: Third Time Lucky?," RSCAS Working Papers 2010/49, European University Institute.
  3. Gebhardt, Georg & Höffler, Felix, 2008. "How to Determine whether Regional Markets are Integrated? Theory and Evidence from European Electricity Markets," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 236, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  4. van der Weijde, A.H. & Hobbs, B.F., 2010. "Locational-based Coupling of Electricity Markets: Benefits from Coordinating Unit Commitment and Balancing Markets," Cambridge Working Papers in Economics 1044, Faculty of Economics, University of Cambridge.
  5. McInerney, Celine & Bunn, Derek, 2013. "Valuation anomalies for interconnector transmission rights," Energy Policy, Elsevier, vol. 55(C), pages 565-578.
  6. Yihsu Chen & Jos Sijm & Benjamin Hobbs & Wietze Lise, 2008. "Implications of CO 2 emissions trading for short-run electricity market outcomes in northwest Europe," Journal of Regulatory Economics, Springer, vol. 34(3), pages 251-281, December.
  7. Füss, Roland & Mahringer, Steffen & Prokopczuk, Marcel, 2013. "Electricity Spot and Derivatives Pricing when Markets are Interconnected," Working Papers on Finance 1323, University of St. Gallen, School of Finance.
  8. Creti, Anna & Fumagalli, Eileen & Fumagalli, Elena, 2010. "Integration of electricity markets in Europe: Relevant issues for Italy," Energy Policy, Elsevier, vol. 38(11), pages 6966-6976, November.
  9. Kristiansen, Tarjei, 2007. "An assessment of the Danish-German cross-border auctions," Energy Policy, Elsevier, vol. 35(6), pages 3369-3382, June.
  10. Lise, Wietze & Kruseman, Gideon, 2008. "Long-term price and environmental effects in a liberalised electricity market," Energy Economics, Elsevier, vol. 30(2), pages 230-248, March.

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