Transmission Networks and Market Power

Abstract

Combined cycle technologies and other electric power generation technologies have reduced the economies of and the critical size of a single generation unit, enabling the multiplication of generators and reducing their individual market power. This phenomenon is expected to facilitate the emergence of a competitive generation market and is one of the major arguments in favor of deregulating the electric power industry. Without transmission constraints and losses, the market for generation would have a unique equilibrium price and the features of a classical perfect or oligopolistic market, and a reduction in the critical size of a generator should definitely improve the competitiveness of the market. Nevertheless, because of loop flows, transmission constraints, and other network externalities, the electric power market is unique and must be studied carefully.