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2006-07 Market monitoring as a means to curb market power and increase efficiency of deregulated markets
September 25-27, 2006


Throughout the world, competition has been artificially created in the liberalized electricity markets by splitting former vertical integrated companies that played a monopolistic role inside the single Countries.
As a consequence, the basis condition of perfect competition that "the individual, both as consumer and producer, is a small part of the market and can therefore take everyone else's behavior as given" (Friedman) is far from fulfilled. More likely situation is that a small number of big companies serve each a significant share of the whole market. A firm has market power when a given slice of demand could not be satisfied without its contribution. Generally, big electricity companies dispose of a significant market power in the deregulated markets. This enables them to carry out price policies that are far from perfect competition, where, at least in marginal markets, each subject should bid at marginal costs: real bids show evident price mark-ups.
From the point of view of a regulator, this opens a dilemma. Any stringent regulatory policy would make the prices resemble to the old regulated ones and would, consequently, hinder competition contradicting the principle of price revelation: who is able to pay more should be selected, since this subject could also provide the maximum value to the purchased assets (in this case electricity). Thus, this policy should be avoided. On the opposite side, the above mentioned oligopolistic nature of nearly all the liberalized markets enables big producers to raise prices virtually at will (also in consideration of the very low level of elasticity of electrical demand).
As a matter of fact the most common choice of the European regulators has been to put in place a very detailed and complex mechanism of market monitoring in order to be better in position to document abuses. This is usually carried out by means of a set of indices. In case of clear abuses, carried out either by one only company or, worse, by cartels, the situation is reported to anti-trust organisms for taking the opportune provisions.
This course will face all the aspects of the market monitoring activity.
First an introduction to all the aspects of market power will be provided (global market power, local market power, market power in secondary markets, etc). It will also shown how market power can be explained in the theoretical frame of games theory.
Second a review of the main indicators used both in literature and in real markets to monitor market efficiency and to detect abuses.
Third, the most common provisions to contrast market power will be dealt with.
Two practical examples of market monitoring will be taken from real European markets and described in depth.
Finally, it will be shown how different types of simulators can be useful to detect market power and forecast how situation could worsen or improve in consequence of the introduction of new provisions (regulatory assessment). Practical cases will be shown in classroom.


Dr. Gianluigi Migliavacca (

Gianluigi Migliavacca was born in 1965, received his degree in Electronic Engineering from the Politechnic University of Milan in 1991.
In 1994 he was engaged in the Automation Research Center of ENEL where he has been responsible of research activities in the field of mathematical modeling and numerical methods for the dynamic simulation of thermal power plants. In 2000 he joined CESI in Milan and began working on methodologies and studies for energy markets and cross border trade. He is still carrying on with this kind of studies within the newly created research and development company CESI RICERCA.
During the year 2003 he gave a significant contribution to a study on the implementation of locational signals in the frame of the evolution of the Internal Electricity Market of the European Community, carried out on behalf of EURELECTRIC, the European federation of electricity producers.
In 2005, he carried out a consultancy on behalf of the Italian Electricity and Gas Regulatory Authority (AEEG) exploring different possibilities to implemement a common allocation procedure of cross-border interconnectors capacity at the Italian boders, taking into account a possible exercise of market power by Italian incumbent producers.
He acted also as a consultant on behalf of AEEG about the so-called Athens process, aiming at setting up a common competitive electricity market in the Energy Community of South East Europe.
He is also member of the technical committee power plants and power systems of IFAC and involved in the evaluation process of the papers presented both to the IFAC World Congresses and to the Power Plants and Power systems Symposia.



G. Migliavacca

J. Barquin
Pontificia Universidad Comillas

R. Belmans
Belgian Transmission System Operator Elia and Katholike Universiteit Leuven

L. Meeus
Katholike Universiteit Leuven

B. Willems
Katholike Universiteit Leuven

F. Mihailescu
Romanian Energy Regulatory Authority ANRE

C. Poletti
Italian Electricity and Gas Regulatory Authority AEEG

P. Rodilla
Pontificia Universidad Comillas, Madrid

F. Verrier
French Transmission System Operator RTE

Course duration and location

Three days, from 25 to 27 of September 2006
CESI RICERCA SpA, via Rubattino, 54, 20134, Milano, Italy.

Courses Contents

1 – Definition of market power: how incumbent producers can exploit dominance in the day-ahead market, local market power in a zonal market, effects of financial hedging on market power, market power and allocation of interconnectors.
2 – Explanation of the mechanism of market power within some recent models of games theory oriented to electricity markets.
3 – Market power in the on-going regionalization of the European markets. Is the creation of a Europe-wide market electricity going to incentivize or to help to curb market power?

4 – Role of TSOs in understanding market actors behavior and ensure the secuity of power systems.
5 – Market power monitoring: theory on monitoring indices, theoretical and practical indices, monitoring activities and regulatory provisions to curb market power in Italy and other west- and east-European electricity markets.
6 – Simulation for assessing and forecasting the impact of dominance and for studying the impact of new provisions. Theoretical presentation and practical demo of electricity market simulators.

  • Monday, September 25

     9.30 - 13.30 Introduction and theoretical foundations (G. Migliavacca)
    14.30 - 17.30 Market power in the regionalization of the European electricity markets (R. Belmans)
  • Tuesday, September 26

     9.00 - 11.00 Needs for a TSO in understanding market actors behavior to ensure the security of the power systems (F. Verrier)
    11.00 - 13.00 Market monitoring in Italy (C. Poletti)
    14.00 - 16.00 Market monitoring in Spain (J. Barquin)
    16.00 - 18.00 Market monitoring in the ERRA region (F. Mihailescu)
  • Wednesday, September 27

     9.00 - 11.00 Presentation of CESI RICERCA simulator (G. Migliavacca)
    11.00 - 13.00 Presentation of Comillas simulator (J. Barquin)
    14.00 - 16.00 Presentation of simulator by RTE and Energienet (F. Verrier)
    16.00 - 18.00 Presentation of simulator by K.U. Leuven (L. Meeus, B. Willems)



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