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Market Performance in the Nordic Electricity Market: An Analysis of Market Power during Energy Market Turbulence

Persson, Simon LU (2023) EOSK12 20231
Department of Economic History
Abstract (Swedish)
This paper analyzes the existence of market power on the Nordic electricity market between 2018-2022, and if the energy market turbulence caused by covid-19, and later deepened following the war in Ukraine affected producers' bidding behavior. Market power was tested using Cournot assumptions to see if producers withheld output strategically when demand was more inelastic. Auction data on system price and sell and buy bids from Nord Pool day-ahead market were used in the analysis. Producers' bidding strategy was then tested using a two-stage least squares regression model. The findings suggest that hydroelectric power producers systematically withhold production as demand becomes more inelastic. Implied price-cost markups associated with... (More)
This paper analyzes the existence of market power on the Nordic electricity market between 2018-2022, and if the energy market turbulence caused by covid-19, and later deepened following the war in Ukraine affected producers' bidding behavior. Market power was tested using Cournot assumptions to see if producers withheld output strategically when demand was more inelastic. Auction data on system price and sell and buy bids from Nord Pool day-ahead market were used in the analysis. Producers' bidding strategy was then tested using a two-stage least squares regression model. The findings suggest that hydroelectric power producers systematically withhold production as demand becomes more inelastic. Implied price-cost markups associated with strategic withholding increased after 2020, suggesting that electricity producers exercised more market power amidst the energy market turbulence. The overall price effect of strategic withholding is small, measured as 0.2% of total system price in the period before 2020, and 1.6% after 2020. (Less)
Please use this url to cite or link to this publication:
author
Persson, Simon LU
supervisor
organization
course
EOSK12 20231
year
type
M2 - Bachelor Degree
subject
language
English
id
9130764
date added to LUP
2023-08-30 08:04:33
date last changed
2023-08-30 08:04:33
@misc{9130764,
  abstract     = {{This paper analyzes the existence of market power on the Nordic electricity market between 2018-2022, and if the energy market turbulence caused by covid-19, and later deepened following the war in Ukraine affected producers' bidding behavior. Market power was tested using Cournot assumptions to see if producers withheld output strategically when demand was more inelastic. Auction data on system price and sell and buy bids from Nord Pool day-ahead market were used in the analysis. Producers' bidding strategy was then tested using a two-stage least squares regression model. The findings suggest that hydroelectric power producers systematically withhold production as demand becomes more inelastic. Implied price-cost markups associated with strategic withholding increased after 2020, suggesting that electricity producers exercised more market power amidst the energy market turbulence. The overall price effect of strategic withholding is small, measured as 0.2% of total system price in the period before 2020, and 1.6% after 2020.}},
  author       = {{Persson, Simon}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Market Performance in the Nordic Electricity Market: An Analysis of Market Power during Energy Market Turbulence}},
  year         = {{2023}},
}