Measuring Market Power and the Efficiency of Alberta’s Restructured Electricity Market: An Energy-Only Market Design

David Brown and Derek Olmstead ()
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Derek Olmstead: Alberta Market Surveillance Administrator

No 2015-14, Working Papers from University of Alberta, Department of Economics

Abstract: We measure the degree of market power execution and inefficiencies in Alberta’s restructured electricity market. Using hourly wholesale market data from 2008 to 2014, we find that firms exercise substantial market power in the highest demand hours with limited excess production capacity. The degree of market power execution in all other hours is low. Market inefficiencies are larger in the high demand hours and elevate production costs by 14% - 19% above the competitive benchmark. This reflects 2.35% of the average market price across all hours. A recent regulatory policy clarifies that certain types of unilateral market power execution is permitted in Alberta. We find evidence that suggests that strategic behavior changed after this announcement. Market power execution increased. We illustrate that the observed earnings are often sufficient to promote investment in natural gas based technologies. However, the rents from market power execution can exceed the estimated capacity costs for certain generation technologies. We demonstrate that the energy market profits in the presence of no market power execution are generally insufficient to promote investment in new generation capacity. This stresses the importance of considering both short-run and long-run performance measures.

Keywords: Electricity Markets; Market Power; Regulatory Policy (search for similar items in EconPapers)
JEL-codes: D44 L13 L50 L94 Q40 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2015-09-23
New Economics Papers: this item is included in nep-com, nep-ene and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Measuring market power and the efficiency of Alberta's restructured electricity market: An energy-only market design (2017)
Journal Article: Measuring market power and the efficiency of Alberta's restructured electricity market: An energy‐only market design (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:albaec:2015_014

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