Modeling competition and investment in liberalized electricity markets [Elektronische Ressource] / von Hannes Weigt

Florian Leuthold

Informations

• Publié par: technische_universitat_dresden
• Publié le: 01 janvier 2009
• Nombre de lectures: 17
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

Modeling Competition and Investment
in Liberalized Electricity Markets



Dissertation

Zur Erlangung des akademischen Grades

Doctor rerum politicarum (Dr. rer. pol.)

vorgelegt an der
Fakultät Wirtschaftswissenschaften
der
Technischen Universität Dresden
am 29. Mai, 2009

von
Dipl.-Wi.-Ing.
Hannes Weigt
(geb. 20. Mai, 1981)


Verteidigt am 14. Juli, 2009




Betreuender Hochschullehrer (1. Gutachter): 2. Gutachter:
Prof. Dr. Christian von Hirschhausen Prof. Dr. Marcel Thum
DREWAG-Stiftungslehrstuhl für Energiewirtschaft Lehrstuhl Finanzwissenschaft
Technische Universität Dresden Technische Universität Dresden
Abstract
In this thesis current questions regarding the functionality of liberalized electricity markets are studied
addressing different topics of interest in two main directions: market power and competition policy on
electricity wholesale markets, and network investments and incentive regulation. The former is studied based
on the case of the German electricity market with respect to ex-post market power analysis and ex-ante
remedy development. First an optimization model is designed to obtain the competitive benchmark which
can be compared to the observed market outcomes between 2004 and 2006. In a second step the horizontal
breaking up of dominant firms (divestiture) is simulated applying equilibrium techniques (the classical
Cournot approach and the Supply Function Equilibrium approach). The later issue of transmission capacity
investment is addressed by highlighting the complexity of network investments in electricity markets and by
analyzing a regulatory mechanism with a two part tariff approach. The technical characteristics of power
flows are combined with economic criteria and tested for different network settings.

JEL-code: L94, L51, D61
Key words: electricity, liberalization, modeling, market power, Germany, Cournot, SFE, divestiture,
network investment, incentive regulation
IIAcknowledgements

Without any claim of completeness I thank the following persons for the productive joint research in the last
years: Georg Zachmann, Bert Willems, Lars Wieschhaus, Christian von Hirschhausen, Ina Rumiantseva,
Juan Rosellón, Stefan Riedel, Anne Neumann, Christoph Müller, Florian Leuthold, Friedrich Kunz, Till
Jeske, Tobias Heß, Tina Hahnemann, Marlen Görner, Karen Freund, Kristin Dietrich, and Jan Abrell. I also
thank colleagues from national and international universities, institutes, and numerous conference meetings
for providing ideas, criticism, and comments. And I thank Ann Stewart for making most of this research
readable.
IIITable of contents
Figures............................................................................................................................................................. VI
TablesVII
Abbreviations.................VIII
Nomenclature................... XI
1 Introduction 1
2 Review of Liberalization and Modeling in Electricity Markets................................................................... 3
2.1 Introduction............3
2.2 Liberalization of Electricity Markets.....................................................................................................3
2.2.1 UK and Norway: First Movers ................................................................................................ 5
2.2.2 Continental Europe .................................................................................................................. 9
2.2.3 United States.......................................................................................................................... 16
2.2.4 Other Countries...................................................................................................................... 20
2.2.5 Lessons Learned .................................................................................................................... 22
2.3 Modeling of Electricity Markets..........................................................................................................24
2.3.1 Classification of Model Types............................................................................................... 25
2.3.2 Application of Models in Electricity Markets ....................................................................... 29
2.4 Conclusion...........................................................................................................................................34
3 Competition in Liberalized Electricity Markets: The Case of Germany.................................................... 35
3.1 Introduction..........35
3.2 Theory of Market Power in Electricity Markets..................................................................................35
3.3 International Experiences with Market Power in Electricity Markets.................................................38
3.4 Market Power Concerns in the German Electricity Market ................................................................40
Market Structure .................................................................................................................... 40 3.4.1
3.4.2 Market Architecture and Development 41
3.4.3 Market Power Concerns......................................................................................................... 43
3.5 A Competitive Benchmark Model of German Electricity Prices ........................................................45
3.5.1 A Stylized Analysis of 2004-2005......................................................................................... 46
3.5.2 Price Formation in 2006 ........................................................................................................ 51
3.6 Conclusion...........................................................................................................................................60
4 Competition Policy and Strategic Company Behavior: Will Divestiture Solve the Problem?................... 61
4.1 Introduction..........61
4.2 Pro-Active Competition Policy: Methods and Experiences ................................................................61
4.2.1 Competition Policy Measurements........................................................................................ 62
4.2.2 Divestiture.............................................................................................................................. 65
4.3 Modeling of Strategic Company Behavior: Cournot vs. SFE .............................................................74
4.3.1 Review on Cournot and SFE Models in Electricity Markets................................................. 74
IV4.3.2 Methodology of the Cournot and SFE Approaches............................................................... 78
4.3.3 Comparison............................................................................................................................ 79
4.3.4 Suitability of Cournot and SFE for Divestiture Analyses...................................................... 81
4.4 Impact of Reduced Market Concentration on Electricity Prices in Germany .....................................81
4.4.1 Modeling Divesture ............................................................................................................... 82
4.4.2 Methodology and Calibration ................................................................................................ 83
4.4.3 Scenarios and Results ............................................................................................................ 85
4.5 Conclusion...........................................................................................................................................88
5 Network Investments, Regulation and Incentives...................................................................................... 89
5.1 Introduction..........89
5.2 Natural Monopolies and Network Extension in Electricity Markets...................................................90
5.2.1 Merchant Transmission Investment....................................................................................... 90
5.2.2 Regulatory Transment .................................................................................... 91
5.3 Meshed Networks and Non-Well-Behaved Cost Functions................................................................93
5.3.1 Model..................................................................................................................................... 93
5.3.2 Data......... 95
5.3.3 Scenarios and Results ............................................................................................................ 97
5.4 An Incentivized Two Part Tariff Applied to Transmission Companies ............................................102
5.4.1 Model Formulation .............................................................................................................. 103
5.4.2 Three-node case ................................................................................................................... 106
5.4.3 Application to a Real-world Network.................................................................................. 112
5.5 Conclusion..........115
6 Summary, C