Objectives
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.
Coordinator
Dr.
Gianluigi Migliavacca (migliavacca@cesi.it)
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.
Instructors
G.
Migliavacca
CESI RICERCA
Italy
J.
Barquin
Pontificia Universidad Comillas
Spain
R.
Belmans
Belgian Transmission System Operator Elia and Katholike Universiteit
Leuven
Belgium
L.
Meeus
Katholike Universiteit Leuven
Belgium
B.
Willems
Katholike Universiteit Leuven
Belgium
F.
Mihailescu
Romanian Energy Regulatory Authority ANRE
Romania
C.
Poletti
Italian Electricity and Gas Regulatory Authority AEEG
Italy
P.
Rodilla
Pontificia Universidad Comillas, Madrid
Spain
F.
Verrier
French Transmission System Operator RTE
France
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)
Course
fees
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