Market Power Modelling in Electricity Market: A Critical Review
This paper presents a critical review of market power modelling in the electricity market. This research provides a coherent guideline to determine suitable modelling for market power in electricity market. This research also includes market power index application in competition policy enforcement. An ideal market power index is one which provides the most straightforward number to measure the market power exercise. However, a more sophisticated approach is needed to mitigate market power since traditional indexes have limitations in representing the complexity of the power system. Cournot modelling has the main weakness in large-scale power system modelling with transmission constraint. However, the Cournot model continues to develop as a tool to analyse player behaviour due to the analytical connectivity between a real power market and microeconomic engineering theory, e.g. DC load flow, reserve margin, transmission constraint, forward contract, demand elasticity, and RSI.
Keywords: Market Power, Electricity Market, Competition Policy
JEL Classifications: D470, L160, L400