Defining European Wholesale Electricity Markets: An 'And/Or' Approach

Abstract

Abstract. An important question in the dynamic European wholesale markets for electricity is whether to define the geographical market at the level of an individual member state or more broadly. We show that if we currently take the traditional approach by considering for each member state whether there is one single other country that provides a substitute for domestic production, the market in each separate member state has still to be considered a separate market. However, if we allow for the possibility that at different moments in time there is another country that provides a substitute for domestic production, then the conclusion should be that certain member states do not constitute a separate geographical market. This is in particular true for Belgium, but also for The Netherlands, France, and to some extent also for Germany and Austria. We call this alternative approach the "and/or" approach.

Competition in the Dutch Electricity Market: An Empirical Analysis over 2006-2011

“…These results indicate that the integration of the Dutch market with the neighboring markets improved competition in the Dutch market, as was already expected by for instance Hobbs, Rijkers and Boots (2005). For the trilateral market coupling between the Dutch, Belgian and French market, however, we do not find that this improved competition in the Dutch market, although it resulted in less price differences between these markets (Dijkgraaf et al, 2007;NMa, 2011). This result may be related to the fact that the Belgian and French markets were far more concentrated than the Dutch market.…”

“…In November 2006, market coupling was introduced in the market with France and Belgium (the so-called Trilateral Market Coupling) while in November 2010 market coupling was realized on the German-Dutch border. The Trilateral Market Coupling appears to have reduced price differences across the borders (Dijkgraaf et al, 2007;NMa, 2011), implying that the markets have become more integrated. An additional benefit of market coupling is that traders are not able anymore to trade only locally (Gebhardt and Ho ¨ffler, 2013).…”

Financial Transmission Rights

“…Janssen et al (2011) and Wobben (2009) analyze European transmission rights as financial instruments. The improved efficiency of the power system and the resulting price convergence that it entailed attracted a lot of attention (De Jong et al 2007;Dijkgraaf and Janssen 2009;Huisman and Kilic 2011;Kurziden 2010;Parisio and Bosco 2008;Pellini 2011;Zachmann 2008).…”