A game theoretic model of the Northwestern European electricity market-market power and the environment

W. Lise, V.G.M. Linderhof, O. Kuik, C. Kemfert, R. Ostling, T. Heinzow

    Research output: Contribution to journalArticleAcademicpeer-review

    68 Citations (Scopus)

    Abstract

    This paper develops a static computational game theoretic model. Illustrative results for the liberalising European electricity market are given to demonstrate the type of economic and environmental results that can be generated with the model. The model is empirically calibrated to eight Northwestern European countries, namely Belgium, Denmark, Finland, France, Germany, The Netherlands, Norway, and Sweden. Different market structures are compared, depending on the ability of firms to exercise market power, ranging from perfect competition without market power to strategic competition where large firms exercise market power. In addition, a market power reduction policy is studied where the near-monopolies in France and Belgium are demerged into smaller firms. To analyse environmental impacts, a fixed greenhouse gas emission reduction target is introduced under different market structures. The results indicate that the effects of liberalisation depend on the resulting market structure, but that a reduction in market power of large producers may be beneficial for both the consumer (i.e. lower prices) and the environment (i.e. lower greenhouse gas permit price and lower acidifying and smog emissions).
    Original languageEnglish
    Pages (from-to)2123-2136
    JournalEnergy Policy
    Volume34
    Issue number15
    DOIs
    Publication statusPublished - 2006

    Keywords

    • transmission price responses
    • strategic generation
    • equilibrium
    • industry
    • system

    Fingerprint Dive into the research topics of 'A game theoretic model of the Northwestern European electricity market-market power and the environment'. Together they form a unique fingerprint.

  • Cite this