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NODAL MARKET POWER ASSESSMENT IN ELECTRICITY

MARKETS

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Introduction

• Market Power• Ability of a seller to profitably maintain prices

above competitive levels for a period

• It is the ability to alter profitably price away from competitive levels

• It’s a symptom of uncompetitive industry

• It results in rise of price and lowering of market efficiency

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Cont…

• Exercising market power can expose customers to the risk of paying high prices

• MP appears in the deregulated power system under contingency states

• Customers use different hedging tools like bilateral contracts to reduce the risk of paying high prices

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Conditions Under Which Market Power Is Created

•Vertical Integration•Horizontal Merges or Collusion•Generation Concentration• Transmission Constraints

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Measuring Market Power

Different MP Indices:

• Herfindahl-Hirschman Index (HHI)• Lerner Index (LI)•Must - Run Ratio (MRR)

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Herfindahl-Hirschman Index (HHI)

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Lerner Index (LI)•

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Must – Run Ratio (MRR)•

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Proposed New MP Indices

• MRS (Must Run Share)It includes the effect of load variation on MP

• NMRS (Nodal Must Run Share)It represents the geographic difference of MP’s

• ENMRS (Expected Nodal Must Run Share)It includes the effect of random failures on nodal MP

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MRG (Must Run Generation)•

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Must-Run Share (MRS)

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NMRS•

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ENMRS•

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Steps To Counter Market Power

• Suitable hedging tools likeBilateral Contracts:• A bilateral contract in an electricity market is an agreement

between a willing buyer and a willing seller to exchange electricity, rights to generating capacity, or a related product under mutually agreeable terms for a specified period of time

Futures Contracts:

• A futures contract, like a forward contract, is an agreement to buy or sell an underlying asset at a specified time in the future.

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Steps To Counter Market PowerCont…• Forward Contract: In a forward contract, the buyer of the contract agrees to buy a

product (which can be a commodity or a currency) at a fixed price at a specified period in the future; the seller of the contract agrees to deliver the product in return for the fixed price.

• Re-regulation: Regulation applied is more of a monitoring, guiding and

policing role in the deregulated sector than a price setting one.

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CONCLUSION

• Three market power indices have been proposed which takes into account the effects of load variation, the geographical differences and random failures .

• Different hedging tools are used to reduce the risk of paying high prices created by exercising market power.

• ARIMA models can be used to predict next-day electricity prices

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References

1. Peng Wang, Yu Xiao and Yi Ding ,Nodal power assessment in electricity market. New York IEEE

2. A . Mas-Collel, A.Whinstom, and J.Green, Microeconomic Theory . New York: IEEE

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THANK YOU…

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