Market Power and Transmission Congestion in the Italian Electricity Market

Simona Bigerna, Carlo Andrea Bollino and Paolo Polinori
Authors registered in the RePEc Author Service: Paolo Polinori, Simona Bigerna () and Carlo Andrea Bollino ()

The Energy Journal, 2016, vol. Volume 37, issue Number 2

Abstract: Analysis of market power in electricity markets is relevant for understanding the competitive development of the industry's restructuring and liberalization process, but in the existing literature, there is not an adequate consideration of line transmission congestion. The aim of this paper is to propose a new approach to measuring market power in the Italian Power Exchange (IPEX), explicitly considering transmission line congestion. We construct a new measure of the residual demand curve to disentangle unilateral market power from congestion rent for the main Italian generators during the period April 2004 to December 2007. In Italy, this period was one of stable transmission network structure. Following the approach of Wolak (2003, 2009), we measure the unilateral market power with the Lerner index (LI), computed as the inverse of the residual demand elasticity. In conclusion, the correct modeling of the residual demand curve including transmission congestions enables us to compute the zonal LI and therefore more accurately measure the market power when congestion occurs. Our results show that various generators exercise market power only in specific zones. These findings provide deeper understanding of market outcomes in the presence of congestion, suggesting appropriate policy directions for market surveillance and competition regulation.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
http://www.iaee.org/en/publications/ejarticle.aspx?id=2755 (text/html)
Access to full text is restricted to IAEE members and subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aen:journl:ej37-2-polinori

Ordering information: This journal article can be ordered from
http://www.iaee.org/en/publications/ejsearch.aspx

Access Statistics for this article

More articles in The Energy Journal from International Association for Energy Economics Contact information at EDIRC.
Bibliographic data for series maintained by David Williams ().