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Assessing The Integration Of Electricity Markets Using Principal Component Analysis: Network And Market Structure Effects




"Market power in electricity wholesale spot markets is more likely if there is market segmentation. We show that principal component analysis is a natural tool for the qualitative and quantitative assessment of the presence of local markets. We study whether the New Zealand market has been a national market or a set of local markets since its inception in 1996 and find that increased competition induced some segmentation that was eliminated by transmission enhancement and the introduction of generation downstream from the constrained circuits. Transmission investment policy that ensures one market will contribute to the efficiency of electricity, water, and related other markets." ("JEL" D4, L1, L4) Copyright 2007 Western Economic Association International.

Suggested Citation

  • Lewis Evans & Graeme Guthrie & Steen Videbeck, 2008. "Assessing The Integration Of Electricity Markets Using Principal Component Analysis: Network And Market Structure Effects," Contemporary Economic Policy, Western Economic Association International, vol. 26(1), pages 145-161, January.
  • Handle: RePEc:bla:coecpo:v:26:y:2008:i:1:p:145-161

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    References listed on IDEAS

    1. Kleit, Andrew N., 2001. "Defining electricity markets: an arbitrage cost approach," Resource and Energy Economics, Elsevier, vol. 23(3), pages 259-270, July.
    2. Borenstein, Severin & Bushnell, James & Wolak, Frank, 2002. "Measuring Market Inefficiencies in California's Deregulated Electricity Industry," Staff General Research Papers Archive 13136, Iowa State University, Department of Economics.
    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. Paul L. Joskow & Edward Kohn, 2002. "A Quantitative Analysis of Pricing Behavior in California's Wholesale Electricity Market During Summer 2000," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 1-35.
    5. Catherine D. Wolfram, 1998. "Strategic Bidding in a Multiunit Auction: An Empirical Analysis of Bids to Supply Electricity in England and Wales," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 703-725, Winter.
    6. Stigler, George J & Sherwin, Robert A, 1985. "The Extent of the Market," Journal of Law and Economics, University of Chicago Press, vol. 28(3), pages 555-585, October.
    7. Park, Haesun & Mjelde, James W. & Bessler, David A., 2006. "Price dynamics among U.S. electricity spot markets," Energy Economics, Elsevier, vol. 28(1), pages 81-101, January.
    8. De Vany, Arthur S. & Walls, W. David, 1999. "Cointegration analysis of spot electricity prices: insights on transmission efficiency in the western US," Energy Economics, Elsevier, vol. 21(5), pages 435-448, October.
    9. Severin Borenstein & James B. Bushnell & Frank A. Wolak, 2002. "Measuring Market Inefficiencies in California's Restructured Wholesale Electricity Market," American Economic Review, American Economic Association, vol. 92(5), pages 1376-1405, December.
    10. Catherine D. Wolfram, 1999. "Measuring Duopoly Power in the British Electricity Spot Market," American Economic Review, American Economic Association, vol. 89(4), pages 805-826, September.
    11. Bushnell, James, 2005. "Looking for Trouble: Competition Policy in the U.S. Electricity Industry," Staff General Research Papers Archive 13140, Iowa State University, Department of Economics.
    12. Chi-Keung Woo & Debra Lloyd-Zannetti & Ira Horowitz, 1997. "Electricity Market Integration in the Pacific Northwest," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 75-101.
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    Cited by:

    1. Lewis Evans & Seamus Hogan & Peter Jackson, 2012. "A critique of Wolak's evaluation of the NZ electricity market: Introduction and overview," New Zealand Economic Papers, Taylor & Francis Journals, vol. 46(1), pages 1-10, November.
    2. Evans, Lewis & Guthrie, Graeme & Lu, Andrea, 2013. "The role of storage in a competitive electricity market and the effects of climate change," Energy Economics, Elsevier, vol. 36(C), pages 405-418.
    3. Guthrie, Graeme & Videbeck, Steen, 2007. "Electricity spot price dynamics: Beyond financial models," Energy Policy, Elsevier, vol. 35(11), pages 5614-5621, November.
    4. Russell Pittman & Vanessa Yanhua Zhang, 2008. "Electricity Restructuring in China: The Elusive Quest for Competition," EAG Discussions Papers 200805, Department of Justice, Antitrust Division.
    5. John J. García & Catalina Gómez & Santiago Bohórquez, 2014. "Formación del precio de las transacciones internacionales de electricidad entre Colombia y Ecuador," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO, June.

    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies


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