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Integrating Energy Markets: Does Sequencing Matter?

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  • Neuhoff, K.
  • Newbery, D.

Abstract

This paper addresses three questions that are relevant to integrating different regional transmission areas. Market integrating normally increases the number of competitors and should therefore reduce prices but the first section shows that prices could rise when the number of generators initially increases. Regulatory effort will also be affected by market integration. If the number of generators in either market is low, then our analysis suggests that the outcome depends on whether the regulators act independently or co-ordinate. Finally, if markets are gradually combined into larger units, the choice of transmission allocation (auctions or market coupling) will affect the prospects of making further gains and hence could lead to incomplete reform.

Suggested Citation

  • Neuhoff, K. & Newbery, D., 2004. "Integrating Energy Markets: Does Sequencing Matter?," Cambridge Working Papers in Economics 0442, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:0442
    Note: CMI48, IO
    as

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    File URL: http://www.econ.cam.ac.uk/electricity/publications/wp/ep48.pdf
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    References listed on IDEAS

    as
    1. Severin Borenstein & James Bushnell, 1999. "An Empirical Analysis of the Potential for Market Power in California’s Electricity Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 47(3), pages 285-323, September.
    2. Joskow, Paul L & Tirole, Jean, 1999. "Transmission Rights and Market Power on Electric Power Networks I: Financial Rights," CEPR Discussion Papers 2093, C.E.P.R. Discussion Papers.
    3. Neuhoff, K., 2003. "Integrating Transmission and Energy Markets Mitigates Market Power," Cambridge Working Papers in Economics 0310, Faculty of Economics, University of Cambridge.
    4. Richard Gilbert & Neuhoff, K. & Newbery, D., 2002. "Allocating Transmission to Mitigate Market Power in Electricity Networks," Cambridge Working Papers in Economics 0225, Faculty of Economics, University of Cambridge.
    5. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-953, October.
    6. repec:bla:jindec:v:47:y:1999:i:1:p:107-24 is not listed on IDEAS
    7. Andreas Ehrenmann & Karsten Neuhoff, 2009. "A Comparison of Electricity Market Designs in Networks," Operations Research, INFORMS, vol. 57(2), pages 274-286, April.
    8. Richard Green, 1999. "The Electricity Contract Market in England and Wales," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 107-124, March.
    9. David M. Newbery, 1995. "Power Markets and Market Power," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 39-66.
    10. David M. Newbery, 2002. "Privatization, Restructuring, and Regulation of Network Utilities," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262640481, December.
    11. Richard Gilbert & Karsten Neuhoff & David Newbery, 2004. "Allocating Transmission to Mitigate Market Power in Electricity Markets," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 691-709, Winter.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. McInerney, Celine & Bunn, Derek, 2013. "Valuation anomalies for interconnector transmission rights," Energy Policy, Elsevier, vol. 55(C), pages 565-578.

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    More about this item

    Keywords

    Wholesale electricity markets; Market evolution; networks; market monitoring;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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