Modelling of imperfect competition in the Nordic electricity market using Balmorel (No. 86)
First a numerical model has been establishment that can represent the electricity system with a spot market as found on the Nordic countries. This includes a model structure and associated illustrative data. The model is formulated as a linear model on top of the Balmorel model, and within such model class the level of detail in the model is relatively high.
The objective of the study is to improve the basis for analysing imperfect competition in the Nordic electricity market. This is done by developing the eletricity market model Balmorel - see www.balmorel.com - for simulation of imperfect competition. Furthermore, in order to ensure a relevant modelling the objective is also to identify the circumstances in the Nordic area, which particularly are expected to be problematic in relation to the lack of competition. The model is implemented with a data set for the Nordel area. Finally, the model is also applied for an enclosed period of time, that is compared with the Norpool-data and the final outcome is interpreted in relation to the market power
Thus, supply and demand functions may be represented quite accurately, indeed better than most data sources sustain. Further transmission is represented in a manner that closely resembles the present practice at the Nordic spot market, and also other market aspects are quite close to the present Nordic spot market. The model introduces price makers and price takers in the electricity market. Second, the model above is supplemented with solution algorithms for several forms of competition, viz., perfect competition, Cournot competition and auction/supply function equilibrium competition. In Cournot competition the strategic variable is the quantity, where firms may exercise market power by bidding only a part of the capacity to the market. In auction/supply function equilibrium competition the firms bid all the capacity to the market, but at prices that are typically higher than marginal cost. The auction/supply function equilibrium representation is made in a number of parameterised versions, where parameter values may be interpreted as degrees of competition. The specification of auction/supply function equilibrium competition forms is an independent result of the project. Third, model structure and data are available on open source conditions, this enhances transparency and communication. Fourth, the importance of the assumptions on competition form has been demonstrated. This is made possible by having and applying representation of different forms of competition which makes it clear that there is not one single measure of the outcome of application of market but a range of possibilities, even in a model environment. The numerical illustrations in Chapter 6 demonstrate that the importance of the assumption on competition form is significant; indeed this assumption and the assumption on demand are the two most important ones. The competition form and the demand elasticity are at the same time the model input which is most difficult to estimate
Key figures
Category
Participants
| Partner | Subsidy | Auto financing |
|---|---|---|
| Danmarks Tekniske Universitet (DTU) |
Contact
Parallelvej 2
DK-2800 Kgs Lyngby, Denmark
www.COWI.dk
Duer, Henrik , 45972211, cowi@cowi.dk
Øvr. Partnere: DTU; Elkraft
