Ferreira Dias, Marta (2011) Integration of European electricity markets. PhD thesis, University of Warwick.

Abstract

This thesis contributes to the study of the role of some identified obstacles to delay the process of liberalisation and integration of European electricity markets and to impede the achievement of its full benefits, namely increase efficiency and, ultimately, to pass on this efficiency gains to final consumers by lowering prices of electricity. Chapter 1 is a description and analysis of the progress made on European liberalisation and integration of electricity markets, identifying some of the main obstacles found on the path to achieve the Single European Market for electricity and solutions propsed to avoid them, either from the perspective of the EC and from the perspective of economic literature. The concerns considered for this review are related with the main focus of the thesis, market power and concentration. The solutions found on the literature to avoid these obstacles are related with the search for the best market design to be adopted in the Single Electricity Market. Since the Nordic countries constitute an integrated market considered as a success, this example is briefly explained in order to understand which are the main features of this success. The second chapter presents a simulation for the integration of the Iberian wholesale electricity market (MIBEL) in order to study how the exercise of market power will evolve with regional full integration. Following Borenstein and Bushnell (1999), we compare simulated market outcomes on four days of 2004, with no integration and with full integration. The presence of market power is measured using the Lerner Index. The simulation results allow us to conclude that, as expected, market power is lower after full integration. However, even after full integration, market power is still a feature of the market. Therefore, the full benefits of liberalisation and integration are not seized by the consumers, since wholesale prices persist to be higher than the marginal costs. The market participants with more benefits are the Portuguese, both consumers and the incumbent firm. The third chapter's purpose is to assess econometrically the impact on final consumer of mergers between electricity generators and natural gas suppliers. We find evidence that a merger of this type will increase final price of electricity in the market where it occurs. Moreover, as a consequence of the EOn-Rurhas German household consumers pay more 1.8% for the electricity and, in Finland, the Nest-Ivo merger caused an increase of around 2% on prices for household consumers. The answer to the question "should household consumers be concerned if a cross sectorial merger happens" seems to be yes, due to the detrimental effects on final prices.

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