Monitoring and Measuring Market Power in the New Zealand Electricity Market

The New Zealand electricity market has a small number of generators with apparently dominant market shares. The ability of market participants to exercise market power in the wholesale market is questioned at any time wholesale electricity spot prices are perceived to rise beyond the perceived cost of production for electricity. In addition to the potential exercise of market power through strategic bidding, opportunities for exploitation of market power may arise from the dispatch and pricing methodologies used in the New Zealand market. Congestion based pricing in an LMP dispatched market can also provide opportunities for exercising market power particularly when combined with the effects of generation portfolios and locational dispersion. The purpose of this paper is to i) Briefly review international experience of market power issues; ii) Examine opportunities for exercising market power in the New Zealand wholesale market environment; iii) Describe some methods available for measuring market power and review their characteristics; iv) Form an opinion as to whether these tools for measuring Market power are appropriate to the New Zealand Wholesale Electricity Market. Where not appropriate, to outline the characteristics of suitable measures.