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Market power in Norwegian electricity market: Are the transmission bottlenecks truly exogenous?

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  • Faisal Mehmood Mirza, Olvar Bergland

Abstract

In this paper, we test whether producers in the southern Norway price zone utilize information on available transmission capacity to induce transmission congestion in their price zone to exercise market power or not. Endogeneity results for import congestion suggest that congestion is endogenous during late night and morning hours implying that producers in southern Norway restrict their output to induce transmission congestion into their price zone. We find an average markup of about 19.5 percent above the marginal cost during these hours. These results point that NordPool's policy of making transmission capacity information public to ensure market transparency is not welfare maximizing as strategic producers can use this information to anticipate and induce transmission congestion into their price zone for driving prices away from the competitive levels.

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  • Faisal Mehmood Mirza, Olvar Bergland, 2015. "Market power in Norwegian electricity market: Are the transmission bottlenecks truly exogenous?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    • Handle: RePEc:aen:journl:ej36-4-berglan
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    1. van Beesten, E. Ruben & Hulshof, Daan, 2023. "Economic incentives for capacity reductions on interconnectors in the day-ahead market," Applied Energy, Elsevier, vol. 341(C).
    2. Veronika Grimm & Alexander Martin & Christian Sölch & Martin Weibelzahl & Gregor Zöttl, 2022. "Market-Based Redispatch May Result in Inefficient Dispatch," The Energy Journal, , vol. 43(5), pages 205-230, September.
    3. Helgesen, Per Ivar & Tomasgard, Asgeir, 2018. "An equilibrium market power model for power markets and tradable green certificates, including Kirchhoff's Laws and Nash-Cournot competition," Energy Economics, Elsevier, vol. 70(C), pages 270-288.
    4. Sara Fogelberg & Ewa Lazarczyk, 2019. "Strategic Withholding through Production Failures," The Energy Journal, , vol. 40(5), pages 247-266, September.
    5. Xiaodong Du and Ofir D. Rubin, 2018. "Transition and Integration of the ERCOT Market with the Competitive Renewable Energy Zones Project," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    6. Binlei Gong, 2020. "Effects of Ownership and Business Portfolio on Production in the Oil and Gas Industry," The Energy Journal, , vol. 41(1), pages 33-54, January.

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