Abstract
In this paper, we test whether producers in the southern Norway price zone utilize information on available transmission capacity to induce transmission congestion in their price zone to exercise market power or not. Endogeneity results for import congestion suggest that congestion is endogenous during late night and morning hours implying that producers in southern Norway restrict their output to induce transmission congestion into their price zone. We find an average markup of about 19.5 percent above the marginal cost during these hours. These results point that NordPool’s policy of making transmission capacity information public to ensure market transparency is not welfare maximizing as strategic producers can use this information to anticipate and induce transmission congestion into their price zone for driving prices away from the competitive levels.
Highlights
In this scenario, transmission congestion in the system might not always be exogenous, rather the result of producers’ strategy to exercise market power by endogenizing the transmission constraints
Since the liberalization of electricity markets around the world, several studies have looked into the impact of transmission congestion on producers’ exercise of market power
Studies of the Norwegian electricity market that look into the impact of transmission congestion on market power find limited evidence that producers exploit transmission bottlenecks and exercise market power
Summary
Transmission congestion in the system might not always be exogenous, rather the result of producers’ strategy to exercise market power by endogenizing the transmission constraints. Studies of the Norwegian electricity market that look into the impact of transmission congestion on market power find limited evidence that producers exploit transmission bottlenecks and exercise market power.
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