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This paper quantifies the degree of market power in the German wholesale electricity market. A fundamental model is used to derive competitive marginal cost estimators which are compared with observed electricity prices. Marginal costs are calculated focusing on market fundamentals such as plant capacities, fuel prices, and load structures. In addition, international power exchange and dynamic effects like start-up costs and hydro storage plant dispatch are incorporated. The comparison of marginal costs and prices reveals increasing market power. While prices appear to be competitive in a first period, they are significantly above marginal costs in a second period. In addition, it is shown that market power is mainly exhibited during peak periods.
This paper quantifies the degree of market power in the German wholesale electricity market. A fundamental model is used to derive competitive marginal cost estimators which are compared with observed electricity prices. Marginal costs are calculated focusing on market fundamentals such as plant capacities, fuel prices, and load structures. In addition, international power exchange and dynamic effects like start-up costs and hydro storage plant dispatch are incorporated. The comparison of marginal costs and prices reveals increasing market power. While prices appear to be competitive in a first period, they are significantly above marginal costs in a second period. In addition, it is shown that market power is mainly exhibited during peak periods.