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Market power mitigation by regulating contract portfolio risk

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Author Info

  • Willems, Bert
  • De Corte, Emmanuel

Abstract

Abuse of market power by dominant generation firms is a growing concern in worldwide electricity markets. This paper argues that relying only on general competition rules--as is the case in most European countries--is insufficient and that complementary ex-ante regulation is needed. In particular, regulators should incentivize firms to sign contracts with retailers by regulating their risk exposure. In a simulation model we show that this type of regulation can significantly reduce the deadweight loss in the market, without imposing large costs on regulatees.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 36 (2008)
Issue (Month): 10 (October)
Pages: 3787-3796

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Handle: RePEc:eee:enepol:v:36:y:2008:i:10:p:3787-3796

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Web page: http://www.elsevier.com/locate/enpol

Related research

Keywords: European electricity markets Market power mitigation Regulation of contracts;

References

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  1. Allaz Blaise & Vila Jean-Luc, 1993. "Cournot Competition, Forward Markets and Efficiency," Journal of Economic Theory, Elsevier, vol. 59(1), pages 1-16, February.
  2. David Sappington, 1980. "Strategic Firm Behavior under a Dynamic Regulatory Adjustment Process," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 360-372, Spring.
  3. Bert Willems & Joris Morbee, 2008. "Risk management in electricity markets: hedging and market incompleteness," Center for Economic Studies - Discussion papers ces0823, Katholieke Universiteit Leuven, Centrum voor Economische Studiƫn.
  4. David M. Newbery, 1998. "Competition, Contracts, and Entry in the Electricity Spot Market," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 726-749, Winter.
  5. Mahenc, P. & Salanie, F., 2004. "Softening competition through forward trading," Journal of Economic Theory, Elsevier, vol. 116(2), pages 282-293, June.
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Citations

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Cited by:
  1. Jean-Michel Glachant & Adrien de Hauteclocque, 2009. "Long-term Energy Supply Contracts in European Competition Policy: Fuzzy not Crazy," EUI-RSCAS Working Papers 6, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  2. Poletti, Steve, 2009. "Government procurement of peak capacity in the New Zealand electricity market," Energy Policy, Elsevier, vol. 37(9), pages 3409-3417, September.
  3. Adrien de Hauteclocque & Yannick Perez, 2011. "Law & Economics Perspectives on Electricity Regulation," RSCAS Working Papers 2011/21, European University Institute.

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