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Strategic Action in the Liberalised German Electricity Market

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Author Info

  • Wietze Lise

    (Institute for Environmental Studies,Vrije Universiteit, Amsterdam, The Netherlands)

  • Claudia Kemfert

    (Scientific Pool of Environmental Economic Disciplines (SPEED) at the Department of Economics I, Oldenburg University, Oldenburg, Germany)

  • Richard S.J. Tol

    (Institute for Environmental Studies, Vrije Universiteit, Amsterdam, The Netherlands; Centre for Marine and Climate Research, Hamburg University, Hamburg, Germany and Center for Integrated Study of the Human Dimensions of Global Change, Carnegie Mellon University, Pittsburgh, PA, USA)

Abstract

Nowadays, a process can be observed in Germany where electricity producing and trading firms react to the electricity market liberalisation by merging market shares, since the year 2000, which reduces the number of suppliers and influences production and consumer prices. This paper discusses whether the liberalisation process will have positive or negative impacts on the environmental situation and whether this process together with a phase out of nuclear power can guarantee the intended improvement of environmental conditions without governmental regulation in Germany. This is done by modelling different strategic options of energy suppliers and their impacts on the economic and environmental situation in the liberalised German electricity market by a computational game theoretic model. Calculations with this model show that when German firms act strategically (e.g. a change in action of one firm affects the electricity price and, hence, the payoffs of other firms), the environment is better off at the cost of higher electricity prices. This result is robust to perturbations as shows by performing a sensitivity analysis.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2003.3.

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Date of creation: Jan 2003
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Handle: RePEc:fem:femwpa:2003.3

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Keywords: Electricity market liberalisation; game theoretic model; environmental effectiveness;

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  1. Green, Richard, 1997. "Electricity transmission pricing: an international comparison," Utilities Policy, Elsevier, vol. 6(3), pages 177-184, September.
  2. Eirik S. Amundsen & Lars Bergman, 2002. "Will Cross-Ownership Re-Establish Market Power in the Nordic Power Market?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 73-95.
  3. Cardell, Judith B. & Hitt, Carrie Cullen & Hogan, William W., 1997. "Market power and strategic interaction in electricity networks," Resource and Energy Economics, Elsevier, vol. 19(1-2), pages 109-137, March.
  4. Amundsen, E.S. & Bergman, L., 2000. "Will Cross-Ownership Reestablish Market Power in the Nordic Power Market?," Norway; Department of Economics, University of Bergen 1900, Department of Economics, University of Bergen.
  5. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
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