Market imperfection and its importance for the Danish adjustment to the Nordic competitive market for electric power
The purpose of the project is to identify and analyse market imperfections of relevance for the future Danish electricity market (limited to the four Nordic countries and Germany).
The main objectives of the project are: 1) To identify market imerfection that are likely to occur in a liberalized market for electricity in Northern Europe. 2) To investigate the consequences of such market imperfection for Danish power companies and electricity customers as wells as for the Danish energy policy (substitution of coal by natural gas and renewables, cogeneration and energy savings). The project will consist of four parts: 1) 2-3 scenarios for the future development of the electricity market in Northern Europe will be constructed. Each of the scenarios will include key assumptions about generation technology, industry structure, trade institutions and public regulation. 2) The most important imperfections that are to be expected on the Danish/Northern European electricity market will be identified. To investigate the consequences of these market imperfections models from industrial organisation analysis will be applied. 3) The analysis of market imperfections will the results from the equilibrium models that have been developed in Norway and Denmark to analyse a Northern European power market with competition. 4) Finally, the project will deal with the implications of market imperfections for Danish competition and energy polity
Market imperfections can be an obstacle for competition in the electricity supply industry. Such imperfections are caused by the ability of some companies to exercise market power or by negative environmental effects that are not reflected in market prices. The purpose of the project is to identify and analyse market imperfections of relevance for the future Danish electricity market (delimited to the four Nordic countries and Germany). The project has been divided into five parts: 1. Market structure and public regulation. As the situation in the Nordic countries is well known in Denmark, we have given priority to an account of the German market and its development after the electricity reform from 1998. 2. Market power and its consequences. We distinguish between horizontal, vertical and spatial market power. The former two are well known from the literature on competition, whereas the last one is specific and due to the network character of the electricity supply industry. The literature on market power is surveyed and its relevance for the Danish/northern European market discussed. In addition, an analytical model is applied to investigate oligopolistic competition among the generators in western Denmark. Market power only has limited impact on the Nordic market, but can be a problem in Germany. 3. Competition and environmental policy. A partial equilibrium model, Elephant, developed for the Nordic power market by Jens Hauch has been applied to analyse the interactions between competition and environmental taxes. The model has been enlarged to include Germany. Environmental taxes will have more impact when they are introduced internationally in a system with cross-border competition. When the taxes are fixed according to an empirical assessment of the environmental damage of electricity generation they will be too low to achieve the Kyoto obligations of the five countries. 4. A financial market for green certificates is planned to substitute guaranteed sales to fixed prices for renewable energy. Which are the main obstacles to the proper functioning of such a market and how can they be overcome? 5. To continue consumer ownership (i.e. consumer co-operatives and municipal utilities) is an important element in the Danish electricity reform from 1999. Will this contribute to the protection of small customers against market power? We argue that consumer ownership has lost most of its original rationale before liberalisation and can be expected to loose what remains after competition has been introduced
Key figures
Category
Participants
| Partner | Subsidy | Auto financing |
|---|---|---|
| Den Kgl. Veterinær- og Landbohøjskole | ||
| KORA, Det Nationale Institut for Kommuners og Regioners Analyse og Forskning |
Contact
P.O. Box 260
DK-4000 Roskilde, Denmark
Olsen, Ole Jess (prof.), 46742000, ojo@teksam.ruc.dk
Øvr. Partnere: Den KGL. Veterinær- og Landbohøjskole. Institut for Økonomi, Skov og Landskab; Amternes og Kommunernes Forskningsinstitut (AKF)
