We have analyzed the link between day-ahead and real-time market performance in a hydro-based wholesale electricity market. The results have been applied to evaluate the Nordic power exchange, Nord Pool Spot (NPS). We reject the null hypothesis that NPS was characterized by perfect competition throughout the period of investigation.An advantage of our approach is the mild informational requirements of the methodology. It only relies on equilibrium prices and production. Individual bid data are not necessary (as in Wolak, 2003; McRae and Wolak, 2009), nor is it necessary to estimate demand and marginal cost functions (as in Kim and Knittel 2006; Bask et al., 2011; Graf and Wozabal, 2013).A simple methodology necessarily contains some drawbacks. It is only a diagnostic test of whether the market can be considered competitive. Also, we run the risk of underestimating market power because price relations consistent with perfect competition are also consistent with the exercise of market power. Hence, the methods proposed in this paper are by no means perfect substitutes for elaborate simulation models (e.g. Bushnell, 2003; Kauppi and Liski, 2008; Philpott et al., 2010) or estimation methods built upon detailed bid data. Rather, we see the methodology as a first and relatively simple step in the analysis of the performance of hydro-based electricity markets.
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