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The More Cooperation, The More Competition? A Cournot Analysis of the Benefits of Electric Market Coupling

If barriers between two power markets are eliminated, what might happen to competition and prices? And who benefits? In the case of the Belgian and Dutch markets, market coupling would permit more efficient use of transmission by improving access to the Belgian market, by counting only net flows against interface limits, and by eliminating mismatches in timing of interface auctions and energy spot markets. We estimate the benefits associated with the first two of these impacts using a transmission-constrained Cournot model. Social surplus improvements on the order of 108 �/year are projected, unless market coupling encourages the largest producer in the region to switch from price-taking in Belgium to a Cournot strategy due to a perceived diminished threat of regulatory intervention. Whether Dutch consumers would benefit also depends on that company�s behavior. The results illustrate how large-scale oligopoly models can be used to assess changes in market designs.

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Energy Modeling – Other; Electricity – Transmission and Network Management; Electricity – Policy and Regulation

JEL Codes:
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
C59 - Econometric Modeling: Other
D44 - Auctions
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Electric power, electric transmission, Liberalization, Oligopoly, market coupling Computational models, NL, Belgium, France, Germany

DOI: 10.5547/ISSN0195-6574-EJ-Vol26-No4-5

Published in Volume 26, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.