Electricity Prices and Generator Behaviour in Gross Pool Electricity Markets

Electricity market liberalisation has become common practice internationally. The justification for this process has been to enhance competition in a market traditionally characterised by statutory monopolies in an attempt to reduce costs to end-users. This paper endeavours to see whether a pool market achieves this goal of increasing competition and reducing electricity prices. Here the electricity market is set up as a sealed bid second price auction. Theory predicts that such markets should result with firms bidding their marginal cost, thereby resulting in an efficient outcome and lower costs to consumers. The Irish electricity system with a gross pool market experiences among the highest electricity prices in Europe. Thus, we analyse the Irish pool system econometrically in order to test if the high electricity prices seen there are due to participants bidding outside of market rules or out of line with theory. Results indicate that the Irish pool system appears to be working efficiently and that generators are bidding their true marginal costs. Thus, the pool element of the market structure does not explain the high electricity prices experienced in Ireland.Electricity Markets; Auction Theory; Multiple Regression Analysis

Identification of Options and Policy Instruments for the Internalisation of External Costs of Electricity Generation. Dissemination of External Costs of Electricity Supply Making Electricity External Costs Known to Policy-Makers MAXIMA

In the present paper, after reviewing the results of the ExternE project and its follow-up stages in the estimation of the external costs of electricity production, we look at the policy instruments for the internalisation of such costs. Emphasis is given to subsidies, such as feed-in tariffs, competitive bidding processes and tradable green certificates to stimulate the use of renewables in the production of electricity. When policy-makers are asked to choose the instrument(s) to internalise the externalities in the electricity production, they have to find a solution that gives the best outcome in terms of efficiency, cost minimisation, impact on the job market, security of energy supply, equity of the instrument, technological innovation, certainty of the level of the internalisation, and feasibility. The choice of the instrument will require some trade-offs among these criteria. Conjoint choice analysis can help in investigating how stakeholders and policy makers trade off the criteria when choosing a policy for the internalisation of the externalities. In this paper we present the first results of a questionnaire that employs conjoint choice questions to find out how policy makers and stakeholders of the electricity market trade off some socio-economic aspects in the selection of the policy instruments for the internalisation of the externalities. The results of this first set of interviews will be useful for further research.Policy instruments, ExternE, External costs, Electricity, Conjoint choice analysis

Integration of dispatchable with non-dispatchable renewable systems and market power : An assessment of the Nordlink interconnector

An increase in integration of electricity markets is allowing for a frequent collaboration between dispatchable and non-dispatchable technologies. The dispatchable nature of the former technology creates a potential for market power amongst firms that host dispatchable technology. As Europe is increasingly embracing non-dispatchable renewables like wind and solar for power generation, it is crucial to address this issue in the presence of dispatchable hydropower systems in the Nordics. A market power analysis has become imperative ever since the NordLink interconnector was opened between hydro-rich Norway with Germany that has enormous share of renewables in its generation mix. My thesis therefore attempts to empirically contribute to the limited literature that has so far addressed this concern but is surely gathering pace. Relying on the theoretical findings from Brekke et al. (2022) and other limited literature on this aspect, I find evidence of non-competitive behaviour by Norwegian hydropower firms in NO2 area after the interconnector was commissioned. By compiling a rich dataset at hourly frequencies, I could show that gaining pivotal status even for shorter time-period has encouraged firms to engage in non-competitive behaviour. The thesis further compares such behaviour during both pre-NordLink and post-NordLink period and finds key differences in the patterns. Whereas a long-run seasonal price elasticity drove such behaviour earlier, pivotal firms engaged in peculiar short-run as well as long-run non-competitive behaviour concurrently. This new-found short-run behaviour was influenced by variations in prevailing German power prices while the long-run behaviour was induced by an interplay of erstwhile seasonal effect as well as a long run price effect. This long-run price effect is collective influenced by current and future price expectations in Germany and variation in available water endowments. My study is finally made robust by demonstrating a stronger impact of non-competitive behaviour on market outcomes in the post-NordLink regime as compared to pre-NordLink period by a factor of three. After the connection, the market power behaviour contributed significantly to price rise despite the presence of other factors driving German prices. This bodes well with the theoretical findings of Brekke et al. (2022) that attributes presence of non-competitive behaviour in Norway that does not allow high price variations that generate in Germany to smoothen as they propagate into Norwegian electricity markets due to integration.nhhma

Market Power and Price Exposure: Learning from Changes in Renewables Regulation

In many regulatory settings, regulators often debate whether to pay producers at fixed prices or at market-based prices. In this paper, we assess how firms' price exposure affects the degree of market power. We find that fixed prices mitigate market power by directly affecting the dominant firms' incentives to exert market power, while market-based prices do so indirectly by promoting the fringe firms' incentives to engage in arbitrage. To empirically identify these effects, we exploit a natural experiment that took place in the Spanish electricity market, where the regulator switched back and forth from paying renewable energies according to fixed or to market-based prices. Overall, we find that fixed prices were relatively more effective in weakening firms' market power, even though the market-based price regime led to more active price arbitrage

Electricity price volatility: its evolution and drivers

The Nordic electricity market offers an opportunity to study how intermittently available technologies are shaping up the future of the electricity markets. This work presents an empirical research on how the wind-produced energy affects the market and what challenges does wind power brings into it. The main proposition is that the wind power output makes the electricity prices less predictable and increases the allocative inefficiencies that already exist in the electricity market. In particular, the study is aimed at estimating the effect of wind power generation on the electricity price volatility in the Nordic electricity market. Additionally, the gap between the mean system price and the mean bidding area prices is described and analysed. Since most standard financial contracts traded in the Nordic countries use the system price as reference price, there is a need to investigate what factors affect the gap between the fictitious clearing price for the whole Nordic region and the actual electricity price at the moment of energy purchase. For conducting the empirical part of the analysis, the linear regression equations are constructed and used. The main objective of this thesis is to capture the wind power effect after controlling for seasonality, trend and exogenous supply shifters. This work also provides a starting point for discussions about the possibility of a new metering technology introduction (such as Smart Grid technology) to the Nordic electricity market

Balancing and Intraday Market Design: Options for Wind Integration

EU Member States increase deployment of intermittent renewable energy sources to deliver the 20% renewable target formulated in the European Renewables Directive of 2008. To incorporate these intermittent sources, a power market needs to be flexible enough to accommodate short-term forecasts and quick turn transactions. This flexibility is particularly valuable with respect to wind energy, where wind forecast uncertainty decreases significantly in the final 24 hours before actual generation. Therefore, current designs of intraday and balancing markets need to be altered to make full use of the flexibility of the transmission system and the different generation technologies to effectively respond to increased uncertainty. This paper explores the current power market designs in European countries and North America and assesses these designs against criteria that evaluate whether they are able to adequately handle wind intermittency.Power market design, integrating renewables, wind energy, balancing, intraday