Market power in a coal-based power generation sector: The case of Poland

Abstract

The paper presents an analysis of market power in the Polish power sector. The study is carried out for the structure that was established by the last consolidation undertaken by the government in 2007, using a game theoretic model of the power generation market (the PolMark model). The model is run under five scenarios and eight cases. The scenarios distinguish between assumptions on strategic behaviour, whereas the cases distinguish assumptions on coal prices. The following measures are discussed in this study: electricity prices, production volumes, consumer and producer surpluses, dead weight welfare loss, CO 2, SO 2, NO x emissions and fuel supplies to power producers. The results confirm that the potential to exert market power in the Polish power generation sector may influence significantly electricity prices and production volumes. The analysis indicates that under the competitive scenario the average wholesale electricity price would be approximately 14.7% lower and the production would be 6.7% higher when compared to the reference scenario. Furthermore, apart from surplus transfer between producers and consumers, the dead weight loss was estimated at the level of 123.6 M€. This value reflects the net social loss resulting from uncompetitive market equilibrium.