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Market power in Norwegian electricity market: Are the transmission bottlenecks truly exogenous?

In this paper, we test whether producers in the southern Norway price zone utilize information on available transmission capacity to induce transmission congestion in their price zone to exercise market power or not. Endogeneity results for import congestion suggest that congestion is endogenous during late night and morning hours implying that producers in southern Norway restrict their output to induce transmission congestion into their price zone. We find an average markup of about 19.5 percent above the marginal cost during these hours. These results point that NordPool's policy of making transmission capacity information public to ensure market transparency is not welfare maximizing as strategic producers can use this information to anticipate and induce transmission congestion into their price zone for driving prices away from the competitive levels.

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JEL Codes: Q41: Energy: Demand and Supply; Prices, Q24: Renewable Resources and Conservation: Land, D44: Auctions, Q48: Energy: Government Policy, Q21: Renewable Resources and Conservation: Demand and Supply; Prices, D47: Market Design, C51: Model Construction and Estimation, L11: Production, Pricing, and Market Structure; Size Distribution of Firms

Keywords: Induced transmission congestion, Market power, Import capacity, NordPool, Statnett

DOI: 10.5547/01956574.36.4.fmir

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Published in Volume 36, Number 4 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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