The effect of counter-trading on competition in electricity markets
In a competitive electricity market, nodal pricing is the most efficient way to manage congestion. Counter-trading is inefficient as it gives the wrong long term signals for entry and exit of power plants. However, in a non-competitive market, additional entry will improve the competitiveness of the market, and will increase social benefit by reducing price-cost margins. This paper studies whether the potential pro-competitive entry effects could make counter-trading more efficient than nodal pricing. We find that this is unlikely to be the case, and expect counter-trading to have a negative effect on overall welfare. The potential benefits of additional competition (more competitive prices and lower production cost) do not outweigh the distortions (additional investment cost for the entrant, and socialization of the congestion cost to final consumers).
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Kupper, G. & Willems, Bert, 2007.
"Arbitrage in Energy Markets : Competing in the Incumbent's Shadow,"
2007-034, Tilburg University, Tilburg Law and Economic Center.
- Gerd Küpper & Bert Willems, 2007. "Arbitrage in energy markets: competing in the incumbent's shadow," Working Papers Department of Economics ces0730, KU Leuven, Faculty of Economics and Business, Department of Economics.
- Kupper Gerd & Willems Bert, 2007. "Arbitrage in Energy Markets: Competing in the Incumbent’s Shadow," Energy, Transport and Environment Working Papers Series ete0707, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
- Kupper, G. & Willems, Bert, 2007. "Arbitrage in Energy Markets : Competing in the Incumbent's Shadow," Discussion Paper 2007-094, Tilburg University, Center for Economic Research.
- Stoft, Steven, 1997. "Transmission pricing zones: simple or complex?," The Electricity Journal, Elsevier, vol. 10(1), pages 24-31.
- Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-242, September.
- M. BjÃ¸rndal & K. JÃ¸rnsten & V. Pignon, 2003. "Congestion management in the Nordic power market - counter purchases and zonal pricing," Competition and Regulation in Network Industries, Intersentia, vol. 4(3), pages 271-293, September.
- Ventosa, Mariano & Baillo, Alvaro & Ramos, Andres & Rivier, Michel, 2005. "Electricity market modeling trends," Energy Policy, Elsevier, vol. 33(7), pages 897-913, May.
- Neuhoff, Karsten & Barquin, Julian & Boots, Maroeska G. & Ehrenmann, Andreas & Hobbs, Benjamin F. & Rijkers, Fieke A.M. & Vazquez, Miguel, 2005. "Network-constrained Cournot models of liberalized electricity markets: the devil is in the details," Energy Economics, Elsevier, vol. 27(3), pages 495-525, May.
- Ehrenmann, Andreas & Smeers, Yves, 2005. "Inefficiencies in European congestion management proposals," Utilities Policy, Elsevier, vol. 13(2), pages 135-152, June.
- Richard Green, 2007. "Nodal pricing of electricity: how much does it cost to get it wrong?," Journal of Regulatory Economics, Springer, vol. 31(2), pages 125-149, April.
- 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.
- Severin Borenstein & James Bushnell & Steven Stoft, 1997. "The Competitive Effects of Transmission Capacity in a Deregulated Electricity Industry," NBER Working Papers 6293, National Bureau of Economic Research, Inc.
- Berenstein, Severin & Bushnell, James & Stoft, Steven, 2000. "The Competitive Effects of Transmission Capacity in a Deregulated Electricity Industry," Staff General Research Papers Archive 13145, Iowa State University, Department of Economics.
- Lijesen, Mark G., 2007. "The real-time price elasticity of electricity," Energy Economics, Elsevier, vol. 29(2), pages 249-258, March.
- Oren, Shmuel S. & Spiller, Pablo T. & Varaiya, Pravin & Wu, Felix, 1995. "Nodal prices and transmission rights: A critical appraisal," The Electricity Journal, Elsevier, vol. 8(3), pages 24-35, April.
- Bert Willems & Gerd Kupper, 2010. "Arbitrage in Energy Markets: Price Discrimination under Congestion," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 41-66.
- Swinand, Gregory & Scully, Derek & Ffoulkes, Stuart & Kessler, Brian, 2010. "Modeling EU Electricity Market Competition Using the Residual Supply Index," The Electricity Journal, Elsevier, vol. 23(9), pages 41-50, November.
- Green, Richard, 2003. "Failing electricity markets: should we shoot the pools?," Utilities Policy, Elsevier, vol. 11(3), pages 155-167, September.
- Green, Richard, 2001. "Failing Electricity Markets: Should we Shoot the Pools?," CEPR Discussion Papers 3010, C.E.P.R. Discussion Papers.
- Richard Gilbert & Karsten Neuhoff & David Newbery, 2004. "Allocating Transmission to Mitigate Market Power in Electricity Markets," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 691-709, Winter. Full references (including those not matched with items on IDEAS)