Competition and strategic behavior in energy markets

PhD ceremony: Mr. R. van Eykel, 13.15 uur, Academiegebouw, Broerstraat 5, Groningen

Dissertation: Competition and strategic behavior in energy markets

Promotor(s): prof. J.L. Moraga-González

Faculty: Economics and Business

 

In the last thirty years, the energy sector has been among those industries that have undergone a worldwide deregulation process with the aim to enhance overall market performance. This thesis contributes to a better understanding of market behavior in the restructured energy industry, which ultimately could help in developing more adequate policy measures. As there is ample empirical support that energy-supplying firms often have some ability to manipulate prices, game-theoretic models are used to study strategic behavior of such suppliers. The thesis provides theoretical insights as well as empirical evidence on the strategic interactions between participants in energy markets.

Focusing on strategic behavior of firms in energy markets, the author examines the role of various instruments these players have at hand to manipulate market outcomes. In addition, he considers whichpolicy measures could be implemented to mitigate market power at the seller’s side. For example, the amount of transmission rights requested by energy wholesalers determines whethera transmission network becomes congested. In case of congested networks, it is shown that the optimal regulatory policy calls for discriminatory (network) access pricing. Furthermore, sellers may have an strategic motive to trade in a forward market depending on the level of transparency in the market. In the thesis, an empirical strategy is developed to test for the presence of this strategic incentive in real-world energy markets. If this incentive is lacking, policy makers should attempt to create a more transparent market as generally a higher amount of forward trading is beneficial for social welfare.