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Market Power and Transmission Congestion in the Italian Electricity Market

Simona Bigerna, Carlo Andrea Bollino and Paolo Polinori

Year: 2016
Volume: Volume 37
Number: Number 2
DOI: 10.5547/01956574.37.2.sbig
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Abstract:
Analysis of market power in electricity markets is relevant for understanding the competitive development of the industry's restructuring and liberalization process, but in the existing literature, there is not an adequate consideration of line transmission congestion. The aim of this paper is to propose a new approach to measuring market power in the Italian Power Exchange (IPEX), explicitly considering transmission line congestion. We construct a new measure of the residual demand curve to disentangle unilateral market power from congestion rent for the main Italian generators during the period April 2004 to December 2007. In Italy, this period was one of stable transmission network structure. Following the approach of Wolak (2003, 2009), we measure the unilateral market power with the Lerner index (LI), computed as the inverse of the residual demand elasticity. In conclusion, the correct modeling of the residual demand curve including transmission congestions enables us to compute the zonal LI and therefore more accurately measure the market power when congestion occurs. Our results show that various generators exercise market power only in specific zones. These findings provide deeper understanding of market outcomes in the presence of congestion, suggesting appropriate policy directions for market surveillance and competition regulation.



Renewable Energy and Market Power in the Italian Electricity Market

Simona Bigerna, Carlo Andrea Bollino and Paolo Polinori

Year: 2016
Volume: Volume 37
Number: Bollino-Madlener Special Issue
DOI: 10.5547/01956574.37.SI2.ppol
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Abstract:
The Italian electricity market has been characterized by a remarkable increase of renewable energy source (RES) supply since 2010, which has determined relevant structural changes in the electric system. Noticeably, during favorable weather conditions, such as sunny or windy hours, increasing supply of RES generation exerts a downward pressure to the formation of the equilibrium price in the market and at the same time forces an increase in line congestion. The aim of this paper is to investigate whether such RES increase has affected the exercise of market power in the Italian Power Exchange (IPEX), explicitly considering transmission line congestion. We employ our approach to construct the residual demand curve and to disentangle the measure of the unilateral market power from the congestion rent. We compute the zonal Lerner index during the period 2009 to 2013 for the main generators in the Italian day-ahead market and we analyze the correlation among market power, congestion and RES supply. In particular, we investigate whether RES development has affected congestion and firm's strategic behavior, empirically testing whether structural changes have occurred in market power or in congestion rent. Our results show that the exercise of market power has been considerably weakened during peak hours by the massive competition of RES, but it has been surprisingly reinforced in specific off-peak hours, in the absence of solar RES and in specific zones, where congestion yields market splitting. These findings support pro-competitive market regulation and reform strategies, and shed light on the impact of RES and congestion on market outcomes.



Comparing Renewable Energy Policies in EU-15, U.S. and China: A Bayesian DSGE Model

Amedeo Argentiero, Tarek Atalla, Simona Bigerna, Silvia Micheli, and Paolo Polinori

Year: 2017
Volume: Volume 38
Number: KAPSARC Special Issue
DOI: 10.5547/01956574.38.SI1.aarg
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Abstract:
The promotion of renewable energy sources (RES) by governments is one way of helping countries to meet their energy needs while lowering greenhouse gas emissions. In this paper, we examine the role of energy policy in RES promotion, based on a carbon tax and RES price subsidy, at a time of technological and demand shocks in the European Union (E.U.) 15 countries, the United States (U.S.) and China, focusing on the macroeconomic implications. Using a dynamic stochastic general equilibrium model for RES and fossil fuels, our results suggest that, in the presence of a total factor productivity shock in the fossil fuel sector, such an energy policy can also be a driving force for smoothing the reduction of RES in the energy market (and vice versa). Additionally, we show that the E.U.15 grouping has a comparative advantage in terms of reaching grid parity compared with the other countries we considered which are more fossil fuel dependent.



Environmental and Energy Efficiency of EU Electricity Industry: An Almost Spatial Two Stages DEA Approach

Simona Bigerna, Maria Chiara D’Errico, and Paolo Polinori

Year: 2019
Volume: Volume 40
Number: The New Era of Energy Transition
DOI: 10.5547/01956574.40.1.sbig
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Abstract:
This study analyzes the relationship between the energy efficiency and the stringency of environmental and market regulation in the electricity sectors has been analyzed. Using 19 European Union countries (2006-2014), we decomposed the environmental policy stringency index, the OECD regulatory indicators and the total factor productivity growth to highlight the complexity of the relations between electricity sector and regulatory policies. In the first stage we compute the three main components of total factor productivity. These three efficiency measures are used in the second stage to assess the impact of the regulatory policies on the total factor productivity also controlling for spatial effect. Results suggest that market and environmental regulations have not unidirectional impacts on the three components of total factor productivity. Pure and scale efficiency index are negatively affected by sectorial regulation that positively affect the shift of technological frontier. Environmental policy negatively affects the shift of the efficient frontier, but has a positive effect on the scale efficiency.





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