Market Power in Power Markets: Evidence from Forward Prices of Electricity
AbstractWe examine the forward market for electricity for indications of misuse of market power. The data source is a unique set of OTC price indications posted by Elsam A/S, the dominant producer in Western Denmark, which is one of the price areas under the Nordic power exchange Nord Pool. The Danish Competition Council (the regulatory government agency) has ruled that Elsam used its dominant position to obtain excessive spot prices over the period July 2003 through December 2006. We show that significant forward premia exist during this period, and that they are related both to spot market volatility and misuse of market power in the spot market, indicating that misuse of market power in the forward market accompanied that which took place in the spot market, according to the regulator?s ruling. This is consistent with the hypothesis that Elsam used the forward market to disguise its spot market manipulation. The findings are consistent across forward premium regressions and structural forward pricing models.
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Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2007-30.
Date of creation: 26 Oct 2007
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Web page: http://www.econ.au.dk/afn/
Electricity; forward prices; market power; OTC prices;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-06-27 (All new papers)
- NEP-COM-2008-06-27 (Industrial Competition)
- NEP-ENE-2008-06-27 (Energy Economics)
- NEP-IND-2008-06-27 (Industrial Organization)
- NEP-MIC-2008-06-27 (Microeconomics)
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