Chapter 21 - An ex-ante market monitoring and regulation mechanism for market concentration in electricity and natural gas markets

Abstract

Market concentration is a sensitive and contradicting issue in power and natural gas markets. This issue concerns the whole European competition policy, as it concerns liberalization process, considers assets with state aid support schemes and covers antitrust and mergers cases. Market concentration is usually tackled under Competition Authorities, through ex-post and ad-hoc evaluation of each case. This creates an uncertainty on whether a market participant is considered to have dominant position in a market, as well as on what and when is allowed for a participant to do concerning its bidding and tariffs formation strategies. The Directorate General for Competition in Europe considers that “if a company has a market share of less than 40%, it is unlikely to be dominant”, however there is not specific threshold which identifies a dominant position. On the other hand, National Regulatory Authorities for Energy are responsible for the regulation and market monitoring of power and natural gas markets, however they do not tackle market concentration issues with a coherent and permanent methodology. This chapter describes an ex-ante Market Monitoring and Regulation Mechanism for Market Concentration in Power and Natural Gas Markets. The mechanism concerns the available capacity in both supply and demand sides. In the supply side, it estimates the available capacity of all market participants, considering the capacity per resource type (i.e., lignite, natural gas, large hydro, renewables), market participation type (i.e., FiT, FiP, commissioning), interconnection (entry) point type and existence of bilateral contracts. It imposes a common threshold, i.e., 40% or 50%, for both aggregate and disaggregate markets, namely capacity of each resource/entry point type. In the demand side, it considers load, storage and pumping as well as export interconnections. However, regulation can exclude resource/entry point types with low capacity under another threshold, i.e., disaggregate market up to 2%/2.5% or 4%/5% of the aggregate market, depending on the values of the second threshold. The mechanism also considers the relative size of market participants in the supply and demand side, implementing a fourth threshold, i.e., at 1% or 2/2.5%, depending on the value of the third threshold. The mechanism is a coherent and permanent mechanism. The mechanism provides indicative results concerning the Hellenic power market. It can assist Energy Regulators to design clear rules on tackling market concentration ex-ante, to be implemented by the Transmission System Operators.