Assessing the Integration of Electricity Markets Using Principal Component Analysis: Network and Market Structure Effects

17 Pages Posted: 18 Jan 2008

See all articles by Lewis T. Evans

Lewis T. Evans

Victoria University of Wellington - New Zealand Institute for Study of Competition and Regulation Inc. (ISCR)

Graeme Guthrie

Victoria University of Wellington - School of Economics & Finance

Steen Videbeck

Cornell University

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Abstract

Market power in electricity wholesale spot markets is more likely if there is market segmentation. We show that principal component analysis is a natural tool for the qualitative and quantitative assessment of the presence of local markets. We study whether the New Zealand market has been a national market or a set of local markets since its inception in 1996 and find that increased competition induced some segmentation that was eliminated by transmission enhancement and the introduction of generation downstream from the constrained circuits. Transmission investment policy that ensures one market will contribute to the efficiency of electricity, water, and related other markets.

JEL Classification: D4, L1, L4

Suggested Citation

Evans, Lewis T. and Guthrie, Graeme and Videbeck, Steen, Assessing the Integration of Electricity Markets Using Principal Component Analysis: Network and Market Structure Effects. Contemporary Economic Policy, Vol. 26, Issue 1, pp. 145-161, January 2008. Available at SSRN: https://ssrn.com/abstract=1084203 or http://dx.doi.org/10.1111/j.1465-7287.2007.00054.x

Lewis T. Evans (Contact Author)

Victoria University of Wellington - New Zealand Institute for Study of Competition and Regulation Inc. (ISCR) ( email )

Wellington 6001
New Zealand
64 4 4635562 (Phone)
64 4 4635566 (Fax)

Graeme Guthrie

Victoria University of Wellington - School of Economics & Finance ( email )

P.O. Box 600
Wellington 6140
New Zealand
64 4 463 5763 (Phone)

Steen Videbeck

Cornell University ( email )

Ithaca, NY 14853
United States

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