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A Review of the Monitoring of Market Power: The Possible Roles of TSOs in Monitoring for Market Power Issues in Congested Transmission Systems

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Paul Twomey
Richard Green
Karsten Neuhoff
David Newbery

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Abstract

The paper surveys the literature and publicly available information on market power monitoring in electricity wholesale markets. After briefly reviewing definitions, strategies and methods of mitigating market power we examine the various methods of detecting market power that have been employed by academics and market monitors/regulators. These techniques include structural and behavioural indices and analysis as well as various simulation approaches. The applications of these tools range from spot market mitigation and congestion management through to long-term market design assessment and merger decisions. Various market-power monitoring units already track market behaviour and produce indices. Our survey shows that these units collect a large amount of data from various market participants and we identify the crucial role of the transmission system operators with their access to dispatch and system information. Easily accessible and comprehensive data supports effective market power monitoring and facilitates market design evaluation. The discretion required for effective market monitoring is facilitated by institutional independence.

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Paper provided by Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research in its series Working Papers with number 0502.

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Date of creation: Mar 2005
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Handle: RePEc:mee:wpaper:0502

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  22. Barquin, J. & Boots,M. G. & Ehrenmann, A. & Hobbs, B.F. & Neuhoff, K. & Rijkers, F. A. M., 2004. "Network-constrained models of liberalized electricity markets: the devil is in the details," Cambridge Working Papers in Economics 0405, Faculty of Economics, University of Cambridge. [Downloadable!]
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