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Mediating Market Power in Electricity Networks

Author

Listed:
  • Gilbert, Richard
  • Neuhoff, Karsten
  • Newbery, David

Abstract

We ask under what conditions transmission contracts increase or mitigate market power. We show that the allocation process of transmission rights is crucial. In an efficiently arbitraged uniform price auction generators will only obtain contracts that mitigate their market power. However, if generators inherit transmission contracts or buy them in a ‘pay-as-bid’ auction, then these contracts can enhance market power. In the two-node network case banning generators from holding transmission contracts that do not correspond to delivery of their own energy mitigates market power. Meshed networks differ in important ways as constrained links no longer isolate prices in competitive markets from market manipulation. The paper suggests ways of minimizing market power considerations when designing transmission contracts.

Suggested Citation

  • Gilbert, Richard & Neuhoff, Karsten & Newbery, David, 2002. "Mediating Market Power in Electricity Networks," Competition Policy Center, Working Paper Series qt8zq3z0tj, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  • Handle: RePEc:cdl:compol:qt8zq3z0tj
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    Cited by:

    1. Petr Spodniak & Mikael Collan & Mari Makkonen, 2017. "On Long-Term Transmission Rights in the Nordic Electricity Markets," Energies, MDPI, Open Access Journal, vol. 10(3), pages 1-19, March.
    2. Hu, X. & Ralph, D. & Ralph, E.K. & Bardsley, P. & Ferris, M.C., 2004. "Electricity Generation with Looped Transmission Networks: Bidding to an ISO," Cambridge Working Papers in Economics 0470, Faculty of Economics, University of Cambridge.
    3. Kristiansen, Tarjei, 2007. "Cross-border transmission capacity allocation mechanisms in South East Europe," Energy Policy, Elsevier, vol. 35(9), pages 4611-4622, September.
    4. Tarjei Kristiansen & Juan Rosellón, 2006. "A Merchant Mechanism for Electricity Transmission Expansion," Journal of Regulatory Economics, Springer, vol. 29(2), pages 167-193, March.

    More about this item

    Keywords

    electricity; market power; transmission rights; nodal pricing;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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