Is the Spanish Electricity Wholesale Market Competitive? Indicators of Abuse of Dominant Position and Application to the Case of Spain

Mon Aug 01 20:24:38 UTC 2011
By Oscar Arnedillo

Since the early 90s there has been a wave of deregulation of electricity markets under the assumption that competitive pressures would lead to a reduction in the cost of supply. In contrast, many of the published studies conclude that these markets are distorted by the abuse of dominant position of incumbents. However, these studies are typically based on theoretical models and tools based on a simplified representation of reality, and by ignoring critical features that constrain the ability or incentives of generators, bias the results, and exaggerate the risk of abuse.

In this article from the August 2011 issue of Estudios de Economía Aplicada, NERA Director Oscar Arnedillo reviews the limitations of some of these tools and, as an alternative, suggests various indicators of market power abuse derived from the observation of the actual behavior of the generators, so as to obtain more robust and reliable conclusions about their behavior. These indicators reject the hypothesis that generators exercise market power in the Spanish electricity market.