Market Power in the Norwegian Electricity Market: Are the Transmission Bottlenecks Truly Exogenous?

In this paper, we test whether producers in the southern Norway price zone utilize information on available transmission capacity to induce transmission congestion in their price zone to exercise market power or not. Endogeneity results for import congestion suggest that congestion is endogenous during late night and morning hours implying that producers in southern Norway restrict their output to induce transmission congestion into their price zone. We find an average markup of about 19.5 percent above the marginal cost during these hours. These results point that NordPool's policy of making transmission capacity information public to ensure market transparency is not welfare maximizing as strategic producers can use this information to anticipate and induce transmission congestion into their price zone for driving prices away from the competitive levels. Keywords: Induced transmission congestion, Market power, Import capacity, NordPool, Statnett
1. INTRODUCTION Since the liberalization of electricity markets around the world, studying the incentives for and estimating the extent of producers' market power have been on the research agenda (Borenstein [...]