TRANSMISSION CONGESTION AND SWITCHING SUPPLY FUNCTIONS

摘要

Out analysis of bidding behavior in the Italian electricity market provide additional evidence in support of thesupply function equilibrium in electricity market. Furthermore, the pattern observed in aggregate data from theNordPool area with higher prices periods with congestion on the transmission lines can also be found in individualbid data in the Italian market. Thus, it appears that electricity producers are able to strategically adapt their bids tothe (anticipated) market conditions. Such behavior is consistent with the supply function equilibrium theory in asetting where producers are learning about the market and market conditions in a repeated setting.Market power is generally defined as the ability of producers to set price over and above marginal cost. In amarket with a limited number of participants and limited market size the supply function equilibrium theorypredicts prices above marginal costs. Our empirical results underscores the importance of market size. Theequilibrium prices depend on the market size and the predictability of congestion.As the European electricity market becomes more highly integrated through market coupling the predictability oftransmission congestion becomes an important factor for market participants. Furthermore, the ability to predictand ultimately influence both congestion and price will be important for the performance of the markets. Thefindings in this paper also raises questions about strategic bidding and market power in an electricity market withnodal pricing. Repeated interaction in a market provides an excellent environment for learning and hence forstrategic behavior conditional upon predictions about the market conditions.