Local Energy Markets*

In current power markets, the bulk of electricity is sold wholesale and transported to consumers via long-distance transmission lines. Recently, decentralized local energy markets have evolved, often as isolated networks based on solar generation. We analyze strategic pricing, investment, and welfare in local energy markets. We show that local energy markets yield competitive equilibrium prices and provide efficient investment incentives. Yet, we find that strategic behavior leads to allocative inefficiency. We propose a clearing mechanism that induces truth-telling behavior and restores first-best welfare.     

Supply function equilibria with capacity constraints and pivotal suppliers

The concept of a supply function equilibrium (SFE) has been widely used to model generators' bidding behavior and market power issues in wholesale electricity markets. Observers of electricity markets have noted how generation capacity constraints may contribute to market power of generation firms. If a generation firm's rivals are capacity constrained then the firm may be pivotal; that is, the firm could substantially raise the market price by unilaterally withholding output. However the SFE literature has not fully considered the impact of capacity constraints and pivotal firms on equilibrium predictions. We characterize the set of symmetric supply function equilibria for uniform-price auctions when firms are capacity constrained and show that this set is increasing as capacity per firm rises. We provide conditions under which asymmetric equilibria exist and characterize these equilibria. In addition, we compare results for uniform-price auctions to those for discriminatory auctions, and we compare our SFE predictions to equilibrium predictions of models in which bidders are constrained to bid on discrete units of output.     

Structural separation versus vertical integration: Lessons for telecommunications from electricity reforms

Structural separation between network and retail functions is increasingly being mandated in the telecommunications sector to countervail the market power of incumbent operators. Experience of separation in the electricity sector offers insights for policy-makers considering telecommunications reforms. Despite apparent competitive benefits, the costs of contracting increase markedly when short-term focused electricity retail operations are separated from longer-term generation infrastructure investments (which require large up-front fixed and sunk cost components). The combination of mismatches in investment horizons, entry barriers, and risk preference and information asymmetries between generators and retailers leads to thin contract markets, increased hold-up risk, perverse wholesale risk management incentives, and bankruptcies. Direct parallels in the telecommunications sector indicate exposure to similar complications, intensifying many of the contractual risks arising from regulated access arrangements. Thus, as in electricity, competition between vertically integrated telecommunications providers would likely induce more efficient and sustainable investment and competition than would separation.     

Mixed Oligopoly and Market Power Mitigation: Evidence from the Colombian Wholesale Electricity Market*

Using information on price bids in wholesale electricity pools and empirical techniques described in the literature on electricity markets, this study identifies the market power mitigation effect of public firms in the Colombian market. The results suggest that while private firms exercise less market power than is predicted by a profit-maximization model, there are marked differences between private and public firms in their exercise of unilateral market power. These findings support the hypothesis of the market power mitigation effect of public firms.     

Cournot competition in wholesale electricity markets: The Nordic power exchange,Nord Pool

Horizontal shifts in bid curves observed in wholesale electricity markets are consistent with Cournot competition. Quantity competition reduces the informational requirements associated with evaluating market performance because the price-cost margins of all producers then depend on the same inverse residual demand curve instead of one for each firm. We apply the model to the day-ahead market of the Nordic power exchange, Nord Pool, for the years 2011-13. We reject the null hypothesis of perfect competition in all specifications. Results suggest that the average price-cost margin across the sample period was around four percent.     

QUANTIFYING MARKET POWER IN THE GERMAN WHOLESALE ELECTRICITY MARKET USING A DYNAMIC MULTI‐REGIONAL DISPATCH MODEL*

This paper quantifies the degree of market power in the German wholesale electricity market. A dispatch model simulates competitive marginal costs. In addition to common input factors like plant capacities, fuel prices and load structures, the model also incorporates international power exchange and dynamic effects like start‐up costs and hydro storage plant dispatch. The simulated prices are subsequently used as a benchmark for observed electricity prices. The analysis reveals significant market power in the German electricity market, mainly exhibited during peak periods. Producer surplus is also increased significantly due to strategic behavior.     

AN EMPIRICAL ANALYSIS OF PAYMENT CARD USAGE*

I exploit a unique data set on the payment card industry to study issues associated with network effects and two‐sided markets. I show that consumers concentrate their spending on a single payment network (single‐homing), although many maintain unused cards that allow the ability to use multiple networks (multi‐homing). Further, I establish a regional correlation between consumer usage and merchant acceptance within the four major networks (Visa, Mastercard, American Express and Discover). This correlation is suggestive of the existence of a positive feedback loop between consumer usage and merchant acceptance.     

Bereitstellung von Regelleistung durch Elektrofahrzeuge: Modellrechnungen für Deutschland im Jahr 2035

The German government has set ambitious goals for both the expansion of renewable energy supply and electromobility. According to its Energiewende policy, electricity supply from fluctuating renewables is supposed to further increase considerably. This will tend to require a greater provision of balancing reserves. At the same time, supply from conventional dispatchable plants, which used to provide the bulk of reserves, will decrease. Against this background, this article analyzes the scope for an assumed fleet of 4.4 million electric vehicles to supply balancing reserves in 2035. Examining two different future power plant scenarios, it explores the potentials of reserve provision with and without the option of feeding electricity from vehicle batteries back to the grid. Results from an extended open-source power system simulation model show that the assumed vehicle fleet can efficiently provide a substantial share of reserve requirements, also in case the vehicle-to-grid option is not available. Arbitrage on wholesale markets, on the other hand, is negligible under basic assumptions. Likewise, total system cost savings are minor when compared to a pure cost-optimal loading of vehicle batteries. Under alternative assumptions on the future power plant portfolio as well as on battery degradation costs, however, wholesale arbitrage, reserve provision, and system cost savings can be substantial.     

Strommarktdesign: Zur Ausgestaltung der Auktionsregeln an der EEX

This paper studies the design of power exchanges in liberalized electricty markets. We analyze several pricing rules for day ahead trading and show that a uniform price mechanism has quite desirable properties as compared to its alternatives. We then discuss how the particular cost structure of electricity generation can be accounted for by appropriate bid formats. We moreover analyze the effects of bid caps and price floors in electricity auctions on market performance, as well as several other aspects of electricity market design. In particular, we discuss linkage of independently operating markets for electricity, reserve energy and transmission capacities, coupling of national power exchanges, and the effects of transparency on the outcome of electricity markets.     

Cost Recovery in Congested Electricity Networks

Large scale investments in European electricity networks are foreseen in the next decade. Pricing the network at marginal cost will not be sufficient to pay for those investments as the network is a natural monopoly. This paper derives numerically the socially optimal transmission prices for cost recovery, taking into account that electricity networks are often congested, while allowing for market power in generation. The model is illustrated with a Stackelberg game for the Belgian electricity market.     

Procuring Flexibility to Support Germany’s Renewables: Policy Options

To continue balancing supply and demand for power is a growing challenge on Germany’s path to producing 80?% of its electricity from renewable sources by 2050. Large-scale investment into a range of technologies will be required to provide the flexibility necessary for balancing. This paper introduces a simple analytical framework to evaluate the German legislator’s numerous efforts to address this challenge. It then proceeds to make two proposals as to how flexibility can be sourced more cheaply. Priority should be given to measures that enable the existing power markets to generate stronger rewards for flexibility. We thus call for financial incentives for variable electricity tariffs to elicit more consumer response and for investment subsidies instead of feed-in tariffs for more demand-oriented renewable power generation. If additional explicit incentives for flexibility are necessary, they can be provided through a market for flexibility.     

Bidding asymmetries in multi-unit auctions: Implications of bid function equilibria in the British spot market for electricity

This paper introduces and tests Bid Function Equilibria (BFE) in the British spot market for electricity. BFE extend von der Fehr and Harbord's (1993) multi-unit auction model of wholesale electricity markets by allowing firms to have heterogeneous costs for different generating units. Pure-strategy equilibria in BFE predict asymmetric bidding by producers: a single firm (the “price-setter") bids strategically while other firms (“non-price-setters") bid their costs. We test for asymmetries in firms' bid functions in the British spot market between 1993 and 1995 and find strong empirical support for the theory. We conclude that BFE have important implications for the design and governance of electricity markets.     

Economics, Competition, and Costs in the Resructuring of U.S. Electricity Markets

Many of the problems facing U.S. electricity markets stem from blatant disregard for the advice and warnings of economists who specialize in these markets. The short list of disregarded economic advice includes existing market power of some generators; transmission discrimination, lack of efficient pricing of transmission congestion; inefficient retail prices; anemic incentives to minimize costs; and lack of consumer choice and experience, occasionally coupled with high switching costs. As uncomfortable as the current state of electric power restructuring may be, going back to full regulation likely would be worse. There is reason to hope that less direct paths to increased competition will resolve some of the worst policy patches and half-reforms. These less direct paths to increased competition include expansion of the size of geographic markets, geographic expansion of transmission unbundling, reductions in obstacles to long-term supply contracting, growth of demand response programs, improvements in generator efficiency and availability, and expansion of real-time pricing and customized energy services for commercial and industrial customers. In aggregate, these constitute a promising “quiet phase” of electric power reform.     

Preisdeterminanten des Stromgroßhandels in Frankreich

This article provides a model-based analysis of the French spot market for electricity. Therefore a cost optimizing dispatch model is applied in order to derive a broader understanding of the liberalized electricity market in France considering empirical spot market prices in 2009. At first analysis of market structure and power plant mix is done in accordance with the european framework. The state of supply side competition is suggested as well. Due to the high portion of nuclear energy in the French energy mix the technical availability forecast of the plants plays a crucial role during the price formation on the wholesale market. As a result prices determined by the model are highly correlated with the French spot market. The results suggest a functioning pricing mechanism although deviations occur by ex-ante uncertain demand or unscheduled non-usability of generating units.     

美国电力管理体制的改革

美国电力工业从上世纪九十年代起开始改革。二十多年来,美国联邦能源监管委员会在建立电力批发市场方面以及在建立区域输电系统方面进行了一系列改革,包括对电力企业实行放松管制、引入竞争机制,开放输电网络、市场定价,无歧视入网、搁浅成本的处理、输电系统的信息透明化等,最终使美国的电力系统效率更高、电价更低,服务质量逐步提高。     

Evaluating the impact of divestitures on competition: Evidence from Alberta’s wholesale electricity market

Asset divestitures play a central role in antitrust and competition policy. Despite their importance, empirical evidence on their impacts on market competition is limited. We analyze market power in Alberta’s wholesale electricity market, where transitional arrangements that virtually divested generation assets from large incumbents were put in place during market restructuring in the early 2000’s and expired at the end of 2020. Subsequently, average peak hour prices rose by 120% the year after their expiry. We demonstrate that nearly two-thirds of this increase can be explained by elevated market power from the large suppliers. Further, exploiting variation in the allocation of the divested assets across heterogeneous firms, we demonstrate that market power execution is elevated when the divested assets are controlled by large strategic firms. Our findings highlight the important role that asset divestitures and their allocations can have on market competition. Our analysis also raises concerns over the ability of restructured electricity markets to facilitate sufficient competition through entry and the potential need for regulatory intervention.     

Die Berücksichtigung von Spitzenkappung in der Anreizregulierung

The model of temporary disconnection of renewable energy in case of high energy injection and low demand is thought to be an effective method for reducing investments in electricity networks. However, plant owners need to be reimbursed for foregone sales. According to the currently discussed draft of the Amendment of the German Incentive Regulation Ordinance, these costs can be rolled over to the consumer on a yearly basis, but are part of the cost benchmark with their base year values. This paper shows that this model sets incentives for optimal investments in electricity networks, but violates the participation constraint: Net operators will be exposed to a severe risk of worsening their position in the cost benchmark. In expectation, they will generate losses and investors have no incentive to invest in electricity networks. This problem can be solved by allowing net operators to roll over costs to customers, while considering average reimbursement fees in the cost benchmark.     

Environmental implications of market structure: Shale gas and electricity markets

We examine the environmental implications of market structure using the exogenous variation in the price of natural gas paid by U.S. electric power producers in the aftermath of the Shale Boom. We find that electric power producers were more responsive to fuel prices in vertically integrated markets than in restructured markets, and we explore the underlying factors driving this heterogeneity in responses. Although differences in the capacity of the most efficient gas power plants between the two market structures are the most important factor, we consider others. The heterogeneity in the response of power plant operators to fuel prices has material implications for carbon dioxide emissions.     

趸售业务分摊省级共用输配电网络费模型研究

输配电成本合理分摊是制定输配电价的基础。针对我国现阶段输配电业务中趸售电量比重较大的特点,研究趸售业务对省级共用输配电网络费的合理分摊问题;结合趸售电量输配特点,基于现有的省级共用输配电网络费分摊模型,建立了趸售业务对省级共用输配电网络费分摊模型;结合算例数据,验证了模型的可行性。     

Der Marktplatz E-Energy aus elektrizitätswirtschaftlicher Perspektive

The E-Energy Market is the place in a future energy system that integrates the markets for energy and Information/Communication Technologies (ICT). From the economic perspective of electricity, business models and business cases can already be developed for sub-markets and sub-areas of network load management, wholesale marketing and energy-market regulations, which as core elements manage consumer load in the mass customer area. As it turns out, the expected surplus value for all business cases is still tightly assessed and the E-Energy Market is therefore no automatic process. It has been assumed that the costs of the necessary information and communication technologies either do not have to be observed or are relatively insignificant. Additionally, considerable fine-tuning of the design of the sub-markets and the regulatory framework is necessary in order to enable the possibility for the business cases to be implemented. In a larger perspective, however, this market will play an important role when it comes to optimizing the power system around fluctuating power generation.