Lars Bergman

The purpose of this study is to elucidate under which circumstances, how, and to what extent market power on a Tradable Green Certificates (TGC) market can be used to affect an entire electricity market. There are basically two reasons for being concerned with this. One is that a small number of companies may have exclusive access to first rate sites for wind power generation. The other is that withdrawal of a small number of TGCs implies a multiple reduction of electricity consumption, with corresponding increases of end user prices. We formulate both an analytical model to investigate economic principles and a numerical model based on that to investigate the Swedish TGC market operating in a setting of a common Nordic electricity market. The analysis shows that Swedish producers may exercise market power using the TGC-market but that this problem will be eliminated by opening the TGC-market for other Nordic countries.

During the second part of the 1990s the Nordic (Denmark, Finland, Norway and Sweden) countries have created a unique multinational market for electricity. This paper aims to analyse the degree of integration of the different national markets that constitute the Nordic electricity market. In particular the Norwegian and Swedish wholesale and retail electricity markets are analysed. The results suggest that the wholesale markets are well integrated. Thus prices differ significantly only during periods with unusually high or low supply of hydropower. However, the retail markets are not integrated to the same degree. Thus retail prices and trade margins differ significantly. Differences in the national electricity market legislation seem to be a key factor behind these differences.

The purpose of this paper is to explore why the Nordic electricity market has worked quite well and to consider to what extent the Nordic experiences are relevant for other countries. In particular, we investigate causes as to why the Nordic market managed to withstand the supply shock in 2002–2003. A comparison is made with the California case, and the potential problem of market power abuse is investigated in particular. The relatively successful electricity market reform in the Nordic countries seems to be attributable to the followings: a simple but sound market design, a successful dilution of market power, a strong political support for deregulation and voluntary, informal commitment to public service by the power industry.

Contends that the Spanish Competition Commission is correct to be cautious with respect to the attempted acquisition of giant electricity producer Endesa by Gas Natural. The creation of national giants in gas and electricity is discussed from the perspective of the European energy market, arguing that such a transaction could slow down the building of internal energy markets. Remedies are proposed, asserting that the high risk of errors in the electricity sector requires consumer protection via overestimating anticompetitive effects.

This chapter provides an overview of the evolution and subsequent expansion of the Nordic market—encompassing Denmark, Finland, Norway, and Sweden, and considered among the most successful competitive markets in the world. The Nordic market experienced and survived a severe hydro shortage during 2002–2003, where reservoirs in the hydro-dominated system fell to unprecedented low levels. But despite this natural shock, the market held together, without mandatory rationing, blackouts, price manipulation, or major financial ruin of any of the players. This, in contrast to other markets is an important hallmark of the Nordic market. However, fears regarding supply, security, and adequacy are likely to be unfounded. Nevertheless, as inherited overcapacity is eroded and new market-based environmental regulation takes effect, tighter market conditions are to be expected. It is then crucial that retail markets be fully developed to allow consumers to adequately protect themselves from occurrences of price spikes. There seems to be four main factors explaining this: 1) the market design of the Nordic market is simple but sound and to a large extent made possible by the large share of hydropower, 2) dilution of market power, attained by the integration of the four national markets into a single Nordic market, has been rather successful, 3) there has been a strong political support for a market-based electricity supply system without intervention in the market mechanisms in stressful situations, 4) the Nordic power industry seems to have a strong voluntary informal commitment to public service.

During the 1990's the electricity markets in Norway, Sweden, Finland and Denmark were deregulated and integrated into a single Nordic market for electricity. A common power exchange, Nord Pool, was established and an essentially common design of the wholesale electricity market, " the Nord Pool system " , was implemented. Important market design features are full market opening and point-of-connection transmission tariffs. The annual consumption of electricity in the area is close to 400 TWh per annum, which is comparable to the largest national electricity markets in Europe. Hydropower accounts for around ? of total generation, while the corresponding figure for nuclear power is ?.

The purpose of this paper is to explore to what extent recently experienced supply and demand shocks have revealed serious design deficiencies in the Nord Pool system. The major supply shock was an unusually low level of precipitation in the autumn of 2002, leading to very low levels of hydropower generation in the winter 2003. The major demand shock came in the winter of 2001, when peak loads reached unprecedented levels. The main conclusions of the analysis are that the new market institutions handled the large variations in hydropower supply quite efficiently, while the provision of peak capacity is an emerging problem unless new market institutions are established.

I think that Kevin Lillis has given us an excellent overview of the corporate restructuring that deregulation has induced, and he has shown that (almost) everything has indeed changed. In particular, we have seen the emergence of the multi–scope, multi–national energy company. I have learnt a lot from reading the paper and have little to add. Yet I would like to make one remark on the privatisation of the Swedish electricity industry, and raise a few more general issues.

Policies aimed at eliminating or significantly reducing serious environmental problems almost by definition imply significant, or even dramatic, emission reductions. But large emission reductions tend to have a large impact on costs in one or several sectors of the economy, and these shifts in relative costs are likely to induce general equilibrium effects throughout the whole economy. For this reason it is often useful to evaluate major environmental policy measures within the frame of a computable general equilibrium (CGE) model of the economy. More precisely a CGE model makes it possible to estimate the costs of environmental policy measures, taking substitution mechanisms in production and consumption as well as market clearing conditions into account. Thus, policy evaluations based on CGE models can provide insights often neglected when more partial methods are used.