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Mediating Market Power in Electricity Networks

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Author Info
Richard Gilbert (University of California, Berkeley)
Karsten Neuhoff (University of Cambridge)
David Newbery (University of Cambridge)

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Abstract

We ask under what conditions transmission contracts increase or mitigate market power. We show that the allocation process of transmission rights is crucial. In an efficiently arbitraged uniform price auction generators will only obtain contracts that mitigate their market power. However, if generators inherit transmission contracts or buy them in a 'pay-as-bid' auction, then these contracts can enhance market power. In the two-node network case banning generators from holding transmission contracts that do not correspond to delivery of their own energy mitigates market power. Meshed networks differ in important ways as constrained links no longer isolate prices in competitive markets from market manipulation. The paper suggests ways of minimizing market power considerations when designing transmission contracts.

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File URL: http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1047&context=iber/econ
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Publisher Info
Paper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number 1047.

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Date of creation: 07 Oct 2002
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Handle: RePEc:cdl:econwp:1047

Note: oai:cdlib1:iber/econ-1047
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Related research
Keywords: electricity; market power; transmission rights; nodal pricing;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Joskow, Paul L & Tirole, Jean, 1999. "Transmission Rights and Market Power on Electric Power Networks I: Financial Rights," CEPR Discussion Papers 2093, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Severin Borenstein & James. Bushnell & Steven Stoft, 2000. "The Competitive Effects of Transmission Capacity in A Deregulated Electricity Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 294-325, Summer.
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  3. Borenstein, Severin & Bushnell, James & Kahn, Edward & Stoft, Steven, 1995. "Market power in California electricity markets," Utilities Policy, Elsevier, vol. 5(3-4), pages 219-236. [Downloadable!] (restricted)
  4. Roger E. Bohn & Michael C. Caramanis & Fred C. Schweppe, 1984. "Optimal Pricing in Electrical Networks over Space and Time," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 360-376, Autumn. [Downloadable!] (restricted)
  5. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-42, September.
  6. Steven Stoft, 1999. "Financial Transmission Rights Meet Cournot: How TCCs Curb Market Power," The Energy Journal, International Association for Energy Economics, vol. 20(1), pages 1-24.
  7. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-53, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hu, X. & Ralph, D. & Ralph, E.K. & Bardsley, P. & Ferris, M.C., 2004. "Electricity Generation with Looped Transmission Networks: Bidding to an ISO," Cambridge Working Papers in Economics 0470, Faculty of Economics, University of Cambridge. [Downloadable!]
  2. Tarjei Kristiansen & Juan Rosellón, 2006. "A Merchant Mechanism for Electricity Transmission Expansion," Journal of Regulatory Economics, Springer, vol. 29(2), pages 167-193, 03. [Downloadable!] (restricted)
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