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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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