IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v39y2011i3p1470-1475.html
   My bibliography  Save this article

Why (and how) to regulate power exchanges in the EU market integration context?

Author

Listed:
  • Meeus, Leonardo

Abstract

The European Union (EU) market integration is leading to increasingly monopolistic electricity market infrastructures, which has opened a debate on the regulation of these so-called power exchanges. In this paper, we start by stating that there are two types of power exchanges in Europe, i.e. "merchant" and "cost-of-service regulated" power exchanges. We then discuss how regulation can be used to better align their incentives with the main power exchange tasks. We conclude that adopting the cost-of-service regulated model for all power exchanges in Europe could be counterproductive in the current context, but that regulation can help ensure that the benefits of the EU market integration materialize. Promising regulatory actions include tempering the reinforced market power of power exchanges, and quality-of-service regulation for the ongoing cooperation among power exchanges to organize trade across borders.

Suggested Citation

  • Meeus, Leonardo, 2011. "Why (and how) to regulate power exchanges in the EU market integration context?," Energy Policy, Elsevier, vol. 39(3), pages 1470-1475, March.
    • Handle: RePEc:eee:enepol:v:39:y:2011:i:3:p:1470-1475
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301-4215(10)00919-5
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kristiansen, Tarjei, 2007. "A preliminary assessment of the market coupling arrangement on the Kontek cable," Energy Policy, Elsevier, vol. 35(6), pages 3247-3255, June.
    2. Pirrong, Craig, 2000. "A Theory of Financial Exchange Organization," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 437-471, October.
    3. Kristiansen, Tarjei, 2007. "An assessment of the Danish-German cross-border auctions," Energy Policy, Elsevier, vol. 35(6), pages 3369-3382, June.
    4. Paul L. Joskow, 2014. "Incentive Regulation in Theory and Practice: Electricity Distribution and Transmission Networks," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 291-344, National Bureau of Economic Research, Inc.
    5. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-242, September.
    6. Meeus, Leonardo & Purchala, Konrad & Belmans, Ronnie, 2005. "Development of the Internal Electricity Market in Europe," The Electricity Journal, Elsevier, vol. 18(6), pages 25-35, July.
    7. Derek Bunn & Georg Zachmann, 2010. "Inefficient arbitrage in inter-regional electricity transmission," Journal of Regulatory Economics, Springer, vol. 37(3), pages 243-265, June.
    8. Meeus, Leonardo & Verhaegen, Karolien & Belmans, Ronnie, 2009. "Block order restrictions in combinatorial electric energy auctions," European Journal of Operational Research, Elsevier, vol. 196(3), pages 1202-1206, August.
    9. Mr. Jens Nystedt, 2004. "Derivative Market Competition: OTC Versus Organized Derivative Exchanges," IMF Working Papers 2004/061, International Monetary Fund.
    10. Turvey, Ralph, 2006. "Interconnector economics," Energy Policy, Elsevier, vol. 34(13), pages 1457-1472, September.
    11. David Newbery & Tanga McDaniel, 2002. "Auctions and trading in energy markets - an economic analysis," Working Papers EP15, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    12. Meeus, L. & Vandezande, L. & Cole, S. & Belmans, R., 2009. "Market coupling and the importance of price coordination between power exchanges," Energy, Elsevier, vol. 34(3), pages 228-234.
    13. Randall S. Kroszner, 1999. "Can the Financial Markets Privately Regulate Risk? The Development of Derivatives Clearing Houses and Recent Over-the Counter Innovations," CRSP working papers 493, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    14. Thomas H. McInish & Robert A. Wood, 1996. "Competition, Fragmentation, and Market Quality," NBER Chapters, in: The Industrial Organization and Regulation of the Securities Industry, pages 63-92, National Bureau of Economic Research, Inc.
    15. Benjamin, Richard, 2010. "A further inquiry into FTR properties," Energy Policy, Elsevier, vol. 38(7), pages 3547-3556, July.
    16. David Sappington, 2005. "Regulating Service Quality: A Survey," Journal of Regulatory Economics, Springer, vol. 27(2), pages 123-154, November.
    17. Chao, Hung-Po & Peck, Stephen, 1996. "A Market Mechanism for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 10(1), pages 25-59, July.
    18. Bushnell, James & Stoft, Steven, 1996. "Grid investment: can a market do the job?," The Electricity Journal, Elsevier, vol. 9(1), pages 74-79.
    19. Hasan, Iftekhar & Malkamaki, Markku, 2001. "Are expansions cost effective for stock exchanges? A global perspective," Journal of Banking & Finance, Elsevier, vol. 25(12), pages 2339-2366, December.
    20. Hasan, Iftekhar & Malkamaki, Markku, 2001. "Are expansions cost effective for stock exchanges? A global perspective," Journal of Banking & Finance, Elsevier, vol. 25(12), pages 2339-2366, December.
    21. Zachmann, Georg, 2008. "Electricity wholesale market prices in Europe: Convergence?," Energy Economics, Elsevier, vol. 30(4), pages 1659-1671, July.
    22. Creti, Anna & Fumagalli, Eileen & Fumagalli, Elena, 2010. "Integration of electricity markets in Europe: Relevant issues for Italy," Energy Policy, Elsevier, vol. 38(11), pages 6966-6976, November.
    23. Pirrong, Stephen Craig, 1995. "The Self-Regulation of Commodity Exchanges: The Case of Market Manipulation," Journal of Law and Economics, University of Chicago Press, vol. 38(1), pages 141-206, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mahringer, Steffen & Fuess, Roland & Prokopczuk, Marcel, 2015. "Electricity Market Coupling and the Pricing of Transmission Rights: An Option-based Approach," Working Papers on Finance 1512, University of St. Gallen, School of Finance.
    2. Curtis, John & Devitt, Niamh & di Cosmo, Valeria & Farrell, Niall & FitzGerald, John & Hyland, Marie & Lynch, Muireann & Lyons, Sean & McCoy, Daire & Malaguzzi Valeri, Laura & Walsh, Darragh, 2014. "Irish Energy Policy: An Analysis of Current Issues," Research Series, Economic and Social Research Institute (ESRI), number rs37 edited by FitzGerald, John & Malaguzzi Valeri, Laura.
    3. Osińska, Magdalena & Kyzym, Mykola & Khaustova, Victoriia & Ilyash, Olha & Salashenko, Tetiana, 2022. "Does the Ukrainian electricity market correspond to the european model?," Utilities Policy, Elsevier, vol. 79(C).
    4. Vahl, Fabrício Peter & Rüther, Ricardo & Casarotto Filho, Nelson, 2013. "The influence of distributed generation penetration levels on energy markets," Energy Policy, Elsevier, vol. 62(C), pages 226-235.
    5. Saguan, Marcelo & Meeus, Leonardo, 2014. "Impact of the regulatory framework for transmission investments on the cost of renewable energy in the EU," Energy Economics, Elsevier, vol. 43(C), pages 185-194.
    6. Torriti, Jacopo, 2014. "Privatisation and cross-border electricity trade: From internal market to European Supergrid?," Energy, Elsevier, vol. 77(C), pages 635-640.
    7. Creti, Anna & Fumagalli, Eileen & Fumagalli, Elena, 2010. "Integration of electricity markets in Europe: Relevant issues for Italy," Energy Policy, Elsevier, vol. 38(11), pages 6966-6976, November.
    8. Füss, Roland & Mahringer, Steffen & Prokopczuk, Marcel, 2013. "Electricity Spot and Derivatives Pricing when Markets are Interconnected," Working Papers on Finance 1323, University of St. Gallen, School of Finance.
    9. Mariusz Swora & Jacek KamiÅ„ski, 2017. "Bringing in Liquidity and Transparency when the Power Sector is Consolidated: The Duty to Trade on the Power Exchange," Review of Economics and Institutions, Università di Perugia, vol. 8(1).
    10. Marcelo Saguan & Leonardo Meeus, 2011. "Modeling the Cost of Achieving a Renewable Energy Target: Does it Pay to Cooperate Across Borders?," RSCAS Working Papers 2011/46, European University Institute.
    11. repec:eme:jfrcpp:v:19:y:2011:i:4:p:355-369 is not listed on IDEAS
    12. Schittekatte, Tim & Meeus, Leonardo, 2020. "Flexibility markets: Q&A with project pioneers," Utilities Policy, Elsevier, vol. 63(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Meeus, Leonardo, 2011. "Implicit auctioning on the Kontek Cable: Third time lucky?," Energy Economics, Elsevier, vol. 33(3), pages 413-418, May.
    2. Pellini, Elisabetta, 2012. "Measuring the impact of market coupling on the Italian electricity market," Energy Policy, Elsevier, vol. 48(C), pages 322-333.
    3. Mahringer, Steffen & Fuess, Roland & Prokopczuk, Marcel, 2015. "Electricity Market Coupling and the Pricing of Transmission Rights: An Option-based Approach," Working Papers on Finance 1512, University of St. Gallen, School of Finance.
    4. Jacques Pelkmans & Lionel Kapff, 2010. "Interconnector Investment for a Well-functioning Internal Market. What EU regime of regulatory incentives?," Bruges European Economic Research Papers 18, European Economic Studies Department, College of Europe.
    5. Füss, Roland & Mahringer, Steffen & Prokopczuk, Marcel, 2013. "Electricity Spot and Derivatives Pricing when Markets are Interconnected," Working Papers on Finance 1323, University of St. Gallen, School of Finance.
    6. Martin Bichler & Hans Ulrich Buhl & Johannes Knörr & Felipe Maldonado & Paul Schott & Stefan Waldherr & Martin Weibelzahl, 2022. "Electricity Markets in a Time of Change: A Call to Arms for Business Research," Schmalenbach Journal of Business Research, Springer, vol. 74(1), pages 77-102, March.
    7. Figueiredo, Nuno Carvalho & Silva, Patrícia Pereira da & Cerqueira, Pedro A., 2015. "Evaluating the market splitting determinants: evidence from the Iberian spot electricity prices," Energy Policy, Elsevier, vol. 85(C), pages 218-234.
    8. Gore, Olga & Vanadzina, Evgenia & Viljainen, Satu, 2016. "Linking the energy-only market and the energy-plus-capacity market," Utilities Policy, Elsevier, vol. 38(C), pages 52-61.
    9. Brunekreeft, Gert, 2004. "Market-based investment in electricity transmission networks: controllable flow," Utilities Policy, Elsevier, vol. 12(4), pages 269-281, December.
    10. Brunekreeft, G., 2003. "Market-based Investment in Electricity Transmission Networks: Controllable Flow," Cambridge Working Papers in Economics 0340, Faculty of Economics, University of Cambridge.
    11. Brijs, Tom & De Jonghe, Cedric & Hobbs, Benjamin F. & Belmans, Ronnie, 2017. "Interactions between the design of short-term electricity markets in the CWE region and power system flexibility," Applied Energy, Elsevier, vol. 195(C), pages 36-51.
    12. Littlechild, Stephen C. & Skerk, Carlos J., 2008. "Transmission expansion in Argentina 2: The Fourth Line revisited," Energy Economics, Elsevier, vol. 30(4), pages 1385-1419, July.
    13. Nuno Carvalho Figueiredo & Patrícia Pereira da Silva & Pedro Cerqueira, 2014. "The Renewables Influence on Market Splitting: the Iberian Spot Electricity Market," GEMF Working Papers 2014-14, GEMF, Faculty of Economics, University of Coimbra.
    14. Richter, Jan & Viehmann, Johannes, 2014. "The value of information in explicit cross-border capacity auction regimes in electricity markets," Energy Policy, Elsevier, vol. 70(C), pages 74-84.
    15. Vincent Rious & Yannick Perez & Philippe Dessante, 2008. "Is combination of nodal pricing and average participation tariff the best solution to coordinate the location of power plants with lumpy transmission investments?," Post-Print hal-00323878, HAL.
    16. Torriti, Jacopo, 2014. "Privatisation and cross-border electricity trade: From internal market to European Supergrid?," Energy, Elsevier, vol. 77(C), pages 635-640.
    17. Eicke, Anselm & Schittekatte, Tim, 2022. "Fighting the wrong battle? A critical assessment of arguments against nodal electricity prices in the European debate," Energy Policy, Elsevier, vol. 170(C).
    18. Creti, Anna & Fumagalli, Eileen & Fumagalli, Elena, 2010. "Integration of electricity markets in Europe: Relevant issues for Italy," Energy Policy, Elsevier, vol. 38(11), pages 6966-6976, November.
    19. Hasan, Iftekhar & Malkamaki, Markku & Schmiedel, Heiko, 2003. "Technology, automation, and productivity of stock exchanges: International evidence," Journal of Banking & Finance, Elsevier, vol. 27(9), pages 1743-1773, September.
    20. Balaguer, Jacint, 2011. "Cross-border integration in the European electricity market. Evidence from the pricing behavior of Norwegian and Swiss exporters," Energy Policy, Elsevier, vol. 39(9), pages 4703-4712, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:39:y:2011:i:3:p:1470-1475. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.