Market Power in Power Markets: Evidence from Forward Prices of Electricity

CREATES Research Paper No. 2007-30

59 Pages Posted: 23 Jun 2008

See all articles by Bent Jesper Christensen

Bent Jesper Christensen

Aarhus University; Aarhus University; Aarhus University

Thomas Elgaard Jensen

affiliation not provided to SSRN

Rune Mølgaard

Aarhus University

Date Written: October 26, 2007

Abstract

We examine the forward market for electricity for indications of misuse of market power, using a unique data set on OTC price indications posted by Elsam A/S, the dominant producer in Western Denmark, which is one of the price areas under the Nordic power exchange Nord Pool. The Danish Competition Council (the regulatory government agency) has ruled that Elsam has used its dominant position to obtain excessive spot prices over a period from July 2003 through December 2006. We show that significant forward premia exist, and that they are related both to spot market volatility and misuse of market power in the spot market, indicating that misuse of market power in the forward market accompanied that which took place in the spot market, according to this ruling. This is consistent with the hypothesis that Elsam used the forward market to disguise its spot market manipulation. The findings are consistent across forward premium regressions and structural forward pricing models.

Keywords: Electricity, forward prices, market power

JEL Classification: G13, L12

Suggested Citation

Christensen, Bent Jesper and Jensen, Thomas Elgaard and Mølgaard, Rune, Market Power in Power Markets: Evidence from Forward Prices of Electricity (October 26, 2007). CREATES Research Paper No. 2007-30. Available at SSRN: https://ssrn.com/abstract=1150145 or http://dx.doi.org/10.2139/ssrn.1150145

Bent Jesper Christensen (Contact Author)

Aarhus University ( email )

Fuglesangs Alle 4
DK-8210 Aarhus V, 8210
Denmark

Aarhus University ( email )

Fuglesangs Alle 4
DK-8210 Aarhus V, 8210
Denmark

Aarhus University ( email )

Fuglesangs Alle 4
DK-8210 Aarhus V, 8210
Denmark

Thomas Elgaard Jensen

affiliation not provided to SSRN

Rune Mølgaard

Aarhus University ( email )

Nordre Ringgade 1
DK-8000 Aarhus C, 8000
Denmark

Register to save articles to
your library

Register

Paper statistics

Downloads
191
Abstract Views
889
rank
157,406
PlumX Metrics