Abstract
In Europe, gas market mergers aim at reducing restrictions on gas wholesale markets. Market mergers also allow network users to book transport capacity at different gas transmission system operators (TSOs), which may give rise to inter-TSO competition. Our theoretical analysis reveals the incentive for TSOs, operating under a revenue-cap regulation in merged markets, to charge lower tariffs at borders where different TSOs offer capacity, compared to borders where only one TSO offers capacity. This incentive does not directly result from revenue-cap regulation but is due to efficiency benchmarking. We test this hypothesis by applying a panel data analysis to tariffs charged at German border points between 2015 and 2018. In line with our hypothesis, we find lower tariffs at those border points where network users have a choice between different TSOs. An additional sensitivity analysis differentiating between transit and meshed networks confirms this result. We conclude that German TSOs, operating in merged markets and under a revenue-cap regime with efficiency benchmarking, compete for demand at borders at which different TSOs offer capacity.
Highlights
According to economic theory, the absence of effective competition requires regulation of natural monopolies
Future mergers are expected not at least because regulatory authorities aim at further improving the functioning of wholesale markets (ACER and CEER 2015)
To reduce barriers to trade, and to increase wholesale market liquidity and competition, market mergers are observed in European gas markets
Summary
The absence of effective competition requires regulation of natural monopolies. This paper investigates tariff related incentives for TSOs that are regulated by a revenue-cap regime, which is the most common regulatory regime applied in European gas markets. We expect lower tariffs at network points at borders where different TSOs offer capacity compared to borders where only one TSO offers capacity We test this hypothesis by applying a panel data analysis to tariffs charged between 2015 and 2018 at German border points by German TSOs that operate under a revenue-cap regulation with efficiency benchmarking. We conclude that German TSOs, operating in merged markets, and under a revenue-cap regime with efficiency benchmarking, have an incentive to reduce tariffs at competitive.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have