MARKET POWER IN POWER MARKETS: THE CASE OF FRENCH WHOLESALE ELECTRICITY MARKET
DOI:
https://doi.org/10.15173/esr.v21i2.2770Keywords:
Electricity, market power, France, oligopolistic market, panel data.Abstract
The French wholesale market is set to expand in the next few years under European pressures and national decisions. In this paper, we investigate the performance of the French wholesale power market to examine whether or not the equilibrium outcomes are competitive. After a literature review on the different existing models, an extension of the Bresnahan - Lau (1982) method in panel data framework is employed with hourly dataset during 2009-2012 on the French wholesale market. The model-based results suggest that though market power is found statistically significant in several peak-load hours, it stays at very low level. On average, no market power is exercised over the examined period. These results correspond with the extremely regulated wholesale power market in France. It is of high interest given the future evolution of the French wholesale market which will be among the biggest in Europe in 2016 after the end of regulated tariffs for all firms.
References
REFERENCES
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Arellano, M. S. (2003). Diagnosing and mitigating market power in Chile's electricity industry.
Baltagi, B. (2008). Econometric analysis of panel data (Vol. 1). John Wiley & Sons.
Bask, M., Lundgren, J., & Rudholm, N. (2011). Market power in the expanding Nordic power market. Applied Economics, 43(9), 1035-1043.
Bordignon, S., Bunn, D. W., Lisi, F., & Nan, F. (2013). Combining day-ahead forecasts for British electricity prices. Energy Economics, 35, 88-103.
Borenstein, S. (2000). Understanding competitive pricing and market power in wholesale electricity markets. The Electricity Journal, 13(6), 49-57.
Borenstein, S., & Bushnell, J. (1999). An empirical analysis of the potential for market power in California’s electricity industry. The Journal of Industrial Economics, 47(3), 285-323.
Borenstein, S., Bushnell, J., & Wolak, F. (2000). Diagnosing market power in California's restructured wholesale electricity market (No. w7868). National Bureau of Economic Research.
Bresnahan, T. F. (1982). The oligopoly solution concept is identified.Economics Letters, 10(1), 87-92.
Bushnell, J., & Saravia, C. (2002). An empirical assessment of the competitiveness of the New England electricity market.
Champsaur, P, Percebois J, and Durieux B. (2011) Rapport de la commission sur le prix de l'accès régulé à l'électricité nucléaire historique (ARENH), Le ministère de l'Écologie, du Développement durable et de l' Energie.
Competition (2007), Directorate-General, DG Competition report on energy sector inquiry, SEC (2006), 2007, 1724.
Conejo, A. J., Contreras, J., Espinola, R., & Plazas, M. A. (2005). Forecasting electricity prices for a day-ahead pool-based electric energy market.International Journal of Forecasting, 21(3), 435-462.
Crespo Cuaresma, J., Hlouskova, J., Kossmeier, S., & Obersteiner, M. (2004). Forecasting electricity spot-prices using linear univariate time-series models.Applied Energy, 77(1), 87-106.
Escribano, A., Ignacio Peña, J., & Villaplana, P. (2011). Modelling Electricity Prices: International Evidence*. Oxford bulletin of economics and statistics,73(5), 622-650.
Green, R. J. (2004). Did English generators play Cournot? Capacity withholding in the electricity pool.
Green, R. J., & Newbery, D. M. (1992). Competition in the British electricity spot market. Journal of political economy, 929-953.
Halseth, A. (1999). Market power in the Nordic electricity market. Utilities Policy, 7(4), 259-268.
Hausman, J. A. (1978). Specification tests in econometrics. Econometrica: Journal of the Econometric Society, 1251-1271.
Hjalmarsson, E. (2000). Nord Pool: A power market without market power.rapport nr.: Working Papers in Economics, (28).
Huisman, R., Huurman, C., & Mahieu, R. (2007). Hourly electricity prices in day-ahead markets. Energy Economics, 29(2), 240-248.
Jouvet, P. A., & Solier, B. (2013). An overview of CO2 cost pass-through to electricity prices in Europe. Energy Policy, 61, 1370-1376.
Karakatsani, N. V., & Bunn, D. W. (2008). Forecasting electricity prices: The impact of fundamentals and time-varying coefficients. International Journal of Forecasting, 24(4), 764-785.
Koopman, S. J., Ooms, M., & Carnero, M. A. (2007). Periodic seasonal reg-arfima–garch models for daily electricity spot prices. Journal of the American Statistical Association, 102(477), 16-27.
Lang, C. (2006). Rise in German Wholesale Electricity Prices: Fundamental Factors, Exercise of Market Power, or Both?. Exercise of Market Power, or Both.
Lau, L. J. (1982). On identifying the degree of competitiveness from industry price and output data. Economics Letters, 10(1), 93-99.
Liu, H., & Shi, J. (2013). Applying ARMA–GARCH approaches to forecasting short-term electricity prices. Energy Economics, 37, 152-166.
Meritet, S. (2007). French perspectives in the emerging European Union energy policy. Energy Policy, 35(10), 4767-4771.
Miller, D. L., Cameron, A. C., & Gelbach, J. (2009). Robust inference with multi-way clustering (No. 09, 9). Working Papers, University of California, Department of Economics.
Mirza, F. M., & Bergland, O. (2012). Transmission congestion and market power: the case of the Norwegian electricity market. Journal of Energy Markets, 5(2), 59-88.
Möst, D., & Genoese, M. (2009). Market power in the German wholesale electricity market. The Journal of Energy Markets, 2(2), 47-74.
Müsgens, F. (2006). Quantifying market power in the German wholesale electricity market using a dynamic multi-regional dispatch model, The Journal of Industrial Economics, 54 (4), 471-498.
Nickell, S. (1981). Biases in dynamic models with fixed effects. Econometrica: Journal of the Econometric Society, 1417-1426.
Nogales, F. J., Contreras, J., Conejo, A. J., & Espínola, R. (2002). Forecasting next-day electricity prices by time series models. Power Systems, IEEE Transactions on, 17(2), 342-348.
Schlueter, S. (2010). A long-term/short-term model for daily electricity prices with dynamic volatility. Energy Economics, 32(5), 1074-1081.
Sheffrin, A. (2002, December). Predicting market power using the residual supply index. In FERC Market Monitoring Workshop December (pp. 3-4).
Steen, F. (2003). Do bottlenecks generate market power?: An empirical study of the Norwegian electricity market, Norwegian School of Economics and Business Administration. Department of Economics.
Steen, F., & Salvanes, K. G. (1999). Testing for market power using a dynamic oligopoly model. International Journal of Industrial Organization, 17(2), 147-177.
Thompson, S. B. (2011). Simple formulas for standard errors that cluster by both firm and time. Journal of Financial Economics, 99(1), 1-10.
Twomey, P., Green, R. J., Neuhoff, K., & Newbery, D. (2006). A review of the monitoring of market power the possible roles of tsos in monitoring for market power issues in congested transmission systems.
Weigt, H., & Hirschhausen, C. V. (2008). Price formation and market power in the German wholesale electricity market in 2006. Energy policy, 36(11), 4227-4234.
Weron, R., & Misiorek, A. (2008). Forecasting spot electricity prices: A comparison of parametric and semiparametric time series models. International Journal of Forecasting, 24(4), 744-763.
Wolak, F. A. (2000). An Empirical Analysis of the Impact of Hedge Contracts on Bidding Behavior in a Competitive Electricity Market*. International Economic Journal, 14(2), 1-39.
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The review of economic studies, 58(2), 277-297.
Arellano, M. S. (2003). Diagnosing and mitigating market power in Chile's electricity industry.
Baltagi, B. (2008). Econometric analysis of panel data (Vol. 1). John Wiley & Sons.
Bask, M., Lundgren, J., & Rudholm, N. (2011). Market power in the expanding Nordic power market. Applied Economics, 43(9), 1035-1043.
Bordignon, S., Bunn, D. W., Lisi, F., & Nan, F. (2013). Combining day-ahead forecasts for British electricity prices. Energy Economics, 35, 88-103.
Borenstein, S. (2000). Understanding competitive pricing and market power in wholesale electricity markets. The Electricity Journal, 13(6), 49-57.
Borenstein, S., & Bushnell, J. (1999). An empirical analysis of the potential for market power in California’s electricity industry. The Journal of Industrial Economics, 47(3), 285-323.
Borenstein, S., Bushnell, J., & Wolak, F. (2000). Diagnosing market power in California's restructured wholesale electricity market (No. w7868). National Bureau of Economic Research.
Bresnahan, T. F. (1982). The oligopoly solution concept is identified.Economics Letters, 10(1), 87-92.
Bushnell, J., & Saravia, C. (2002). An empirical assessment of the competitiveness of the New England electricity market.
Champsaur, P, Percebois J, and Durieux B. (2011) Rapport de la commission sur le prix de l'accès régulé à l'électricité nucléaire historique (ARENH), Le ministère de l'Écologie, du Développement durable et de l' Energie.
Competition (2007), Directorate-General, DG Competition report on energy sector inquiry, SEC (2006), 2007, 1724.
Conejo, A. J., Contreras, J., Espinola, R., & Plazas, M. A. (2005). Forecasting electricity prices for a day-ahead pool-based electric energy market.International Journal of Forecasting, 21(3), 435-462.
Crespo Cuaresma, J., Hlouskova, J., Kossmeier, S., & Obersteiner, M. (2004). Forecasting electricity spot-prices using linear univariate time-series models.Applied Energy, 77(1), 87-106.
Escribano, A., Ignacio Peña, J., & Villaplana, P. (2011). Modelling Electricity Prices: International Evidence*. Oxford bulletin of economics and statistics,73(5), 622-650.
Green, R. J. (2004). Did English generators play Cournot? Capacity withholding in the electricity pool.
Green, R. J., & Newbery, D. M. (1992). Competition in the British electricity spot market. Journal of political economy, 929-953.
Halseth, A. (1999). Market power in the Nordic electricity market. Utilities Policy, 7(4), 259-268.
Hausman, J. A. (1978). Specification tests in econometrics. Econometrica: Journal of the Econometric Society, 1251-1271.
Hjalmarsson, E. (2000). Nord Pool: A power market without market power.rapport nr.: Working Papers in Economics, (28).
Huisman, R., Huurman, C., & Mahieu, R. (2007). Hourly electricity prices in day-ahead markets. Energy Economics, 29(2), 240-248.
Jouvet, P. A., & Solier, B. (2013). An overview of CO2 cost pass-through to electricity prices in Europe. Energy Policy, 61, 1370-1376.
Karakatsani, N. V., & Bunn, D. W. (2008). Forecasting electricity prices: The impact of fundamentals and time-varying coefficients. International Journal of Forecasting, 24(4), 764-785.
Koopman, S. J., Ooms, M., & Carnero, M. A. (2007). Periodic seasonal reg-arfima–garch models for daily electricity spot prices. Journal of the American Statistical Association, 102(477), 16-27.
Lang, C. (2006). Rise in German Wholesale Electricity Prices: Fundamental Factors, Exercise of Market Power, or Both?. Exercise of Market Power, or Both.
Lau, L. J. (1982). On identifying the degree of competitiveness from industry price and output data. Economics Letters, 10(1), 93-99.
Liu, H., & Shi, J. (2013). Applying ARMA–GARCH approaches to forecasting short-term electricity prices. Energy Economics, 37, 152-166.
Meritet, S. (2007). French perspectives in the emerging European Union energy policy. Energy Policy, 35(10), 4767-4771.
Miller, D. L., Cameron, A. C., & Gelbach, J. (2009). Robust inference with multi-way clustering (No. 09, 9). Working Papers, University of California, Department of Economics.
Mirza, F. M., & Bergland, O. (2012). Transmission congestion and market power: the case of the Norwegian electricity market. Journal of Energy Markets, 5(2), 59-88.
Möst, D., & Genoese, M. (2009). Market power in the German wholesale electricity market. The Journal of Energy Markets, 2(2), 47-74.
Müsgens, F. (2006). Quantifying market power in the German wholesale electricity market using a dynamic multi-regional dispatch model, The Journal of Industrial Economics, 54 (4), 471-498.
Nickell, S. (1981). Biases in dynamic models with fixed effects. Econometrica: Journal of the Econometric Society, 1417-1426.
Nogales, F. J., Contreras, J., Conejo, A. J., & Espínola, R. (2002). Forecasting next-day electricity prices by time series models. Power Systems, IEEE Transactions on, 17(2), 342-348.
Schlueter, S. (2010). A long-term/short-term model for daily electricity prices with dynamic volatility. Energy Economics, 32(5), 1074-1081.
Sheffrin, A. (2002, December). Predicting market power using the residual supply index. In FERC Market Monitoring Workshop December (pp. 3-4).
Steen, F. (2003). Do bottlenecks generate market power?: An empirical study of the Norwegian electricity market, Norwegian School of Economics and Business Administration. Department of Economics.
Steen, F., & Salvanes, K. G. (1999). Testing for market power using a dynamic oligopoly model. International Journal of Industrial Organization, 17(2), 147-177.
Thompson, S. B. (2011). Simple formulas for standard errors that cluster by both firm and time. Journal of Financial Economics, 99(1), 1-10.
Twomey, P., Green, R. J., Neuhoff, K., & Newbery, D. (2006). A review of the monitoring of market power the possible roles of tsos in monitoring for market power issues in congested transmission systems.
Weigt, H., & Hirschhausen, C. V. (2008). Price formation and market power in the German wholesale electricity market in 2006. Energy policy, 36(11), 4227-4234.
Weron, R., & Misiorek, A. (2008). Forecasting spot electricity prices: A comparison of parametric and semiparametric time series models. International Journal of Forecasting, 24(4), 744-763.
Wolak, F. A. (2000). An Empirical Analysis of the Impact of Hedge Contracts on Bidding Behavior in a Competitive Electricity Market*. International Economic Journal, 14(2), 1-39.
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