Market Integration and Economic Efficiency at Conflict? Commitments in the Swedish Interconnectors Case

25 Pages Posted: 18 Jul 2012

See all articles by Bert Willems

Bert Willems

Tilburg University - Department of Economics - CentER & TILEC; University of Toulouse 1 - Toulouse School of Economics (TSE)

Malgorzata M. Sadowska

University of Bologna

Date Written: July 17, 2012

Abstract

According to the European Commission, Svenska Kraftnät, the Swedish network operator, might have violated competition rules by limiting cross-border transmission capacity to relieve congestion within Sweden. Eventually, the case was settled and Svenska Kraftnät offered commitments to address the Commission’s concerns. As an interim remedy, it committed to reduce transmission flow of electricity on internal network bottlenecks primarily by introducing national measures and by not reducing interconnection capacity. As a final remedy, Svenska Kraftnät agreed to split the Swedish market into multiple price zones. Congestion within Sweden would then be solved by adjusting the prices of those zones. We analyse the economic effects of the alleged abuse and the remedy package. We make three observations. Firstly, it might be socially optimal to reduce cross-border capacity in response to internal congestion. Hence, without an in-depth economic analysis the Commission risked preventing efficient behaviour. Secondly, the interim remedy of handling internal congestion primarily by national measures is not socially optimal, and it cannot be ruled out that it reduces overall welfare. Thirdly, even though splitting the market into price zones may improve allocative efficiency within Sweden, it does not prevent Svenska Kraftnät from potential manipulation of cross-border transmission capacity.

Keywords: European energy markets, transmission congestion, competition policy, Article 102 TFEU, Swedish network

JEL Classification: K21, K42, L43, L44, L94

Suggested Citation

Willems, Bert and Sadowska, Malgorzata M., Market Integration and Economic Efficiency at Conflict? Commitments in the Swedish Interconnectors Case (July 17, 2012). TILEC Discussion Paper No. 2012-027, Available at SSRN: https://ssrn.com/abstract=2111319 or http://dx.doi.org/10.2139/ssrn.2111319

Bert Willems

Tilburg University - Department of Economics - CentER & TILEC ( email )

P.O. Box 90153 Room K308
Tilburg, 5000LE
Netherlands
+31134662588 (Phone)

HOME PAGE: http://www.bertwillems.com

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Malgorzata M. Sadowska (Contact Author)

University of Bologna ( email )

Piazza Scaravilli 2
Bologna, 40100
Italy

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