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

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  • Hobbs, B.F.
  • Rijkers, F.A.M.

Abstract

Market coupling in Belgian and Dutch markets would permit more efficient use of intercountry transmission, 1) by counting only net flows against transmission limits, 2) by improving access to the Belgian market, and 3) by eliminating the mismatch in timing between interface auctions and the energy spot market. A Cournot market model that accounts for the region’s transmission pricing rules and limitations is used to simulate market outcomes with and without market coupling. This accounts for 1) and 2). Market coupling improves social surplus in the order of 108 €/year, unless it encourages the largest producer in the region to switch from a price-taking strategy in Belgium to a Cournot strategy due to a perceived diminishment of the threat of regulatory intervention. Benefit to Dutch consumers depends on the behavior of this company. The results illustrate how large-scale oligopoly models can be useful for assessing market integration.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0509.

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Length: 38
Date of creation: Jan 2005
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Handle: RePEc:cam:camdae:0509

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Related research

Keywords: Electric power; Electric transmission; Liberalization; Oligopoly; Complementarity models; Computational models; Netherlands; Belgium; France; Germany; Market Coupling;

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Citations

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Cited by:
  1. Leonardo Meeus, 2010. "Implicit Auctioning on the Kontek Cable: Third Time Lucky?," RSCAS Working Papers 2010/49, European University Institute.
  2. 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.
  3. McInerney, Celine & Bunn, Derek, 2013. "Valuation anomalies for interconnector transmission rights," Energy Policy, Elsevier, vol. 55(C), pages 565-578.
  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. 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.
  6. 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.
  7. Kristiansen, Tarjei, 2007. "An assessment of the Danish-German cross-border auctions," Energy Policy, Elsevier, vol. 35(6), pages 3369-3382, June.
  8. 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.
  9. 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.
  10. 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.
  11. Alexander Zerrahn & Daniel Huppmann, 2014. "Network Expansion to Mitigate Market Power: How Increased Integration Fosters Welfare," Discussion Papers of DIW Berlin 1380, DIW Berlin, German Institute for Economic Research.

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