Measuring market concentration in European power exchanges “coupled” over a meshed cross-border network

The European electricity markets are moving in the direction of market coupling and allocating the cross-border transmission capacity using implicit auctions. The tri-lateral power exchange combining the power exchanges of France, Belgium, and Netherlands is currently operational. German and Danish exchanges are to be coupled in June 2008. The integration of Netherlands, Belgium, France, Germany and Luxemburg is planned to be done by January 1, 2009. Such integrated clearing of European national electricity markets would allow using the cross-border transmission capacity more efficiently compared to the current bilateral management that does not allow full utilization of the cross-border capacity. This could help expanding the relevant geographic markets beyond the national borders, and promote competition in the European electricity market. Although the integrated management of the power flows over the looped networks best reflects the physics of electric power flows, it significantly complicates the analysis of competitiveness and concentration in such electricity markets. The topology of geographic markets created by such constraints is often non-trivial. In this paper a methodology is developed to assess the geographic scope of electricity wholesale markets in continental Europe implied by the cross-border transmission capacity allocated using the implicit auctions mechanisms of market coupling. This methodology applies the conventional methods of measuring unilateral market power in electricity markets, such as pivotal suppliers and residual demand elasticity, to perform a hypothetical monopoly test for identification of geographic relevant markets. The paper analyses the change in the topology of relevant geographic markets due to the introduction of market coupling using an approximate model of interconnected transmission network of 17 European countries compiled by (Zhou et.al, 2005).