Table of Contents

Competition, Contracts and Electricity Markets

Competition, Contracts and Electricity Markets

A New Perspective

Loyola de Palacio Series on European Energy Policy

Edited by Jean-Michel Glachant, Dominique Finon and Adrien de Hauteclocque

This book fills a gap in the existing literature by dealing with several issues linked to long-term contracts and the efficiency of electricity markets. These include the impact of long-term contracts and vertical integration on effective competition, generation investment in risky markets, and the challenges for competition policy principles.

Chapter 8: Competition and Long-term Contracts in the Dutch Electricity Market

Machiel Mulder

Subjects: economics and finance, competition policy, energy economics, industrial organisation, law - academic, energy law

Extract

Machiel Mulder1 INTRODUCTION 1 About a decade ago competition was introduced in the electricity industry in the Netherlands which significantly influenced both the structure of the market and the way market players operate. Central coordination of supply decisions was replaced by decentralized decision-making while markets were created to take care of coordination. In addition vertical relationships within the industry became increasingly commercial owing to the implementation of ownership unbundling between network activities on the one hand and production and supply activities on the other. Moreover reducing bottlenecks in transport and trade between countries enlarged the size of the markets in geographical sense, making producers and traders more vulnerable to foreign competition. Although these structural measures undoubtedly have significantly improved the functioning of the electricity market, a number of factors remain which potentially hinder competition. One of those factors might be the presence of long-term contracts and other kinds of vertical relationships between producers and retailers. Such relationships might result in foreclosure if it hinders other (new) firms in production or retail to enter the market or to increase market share (see EC 2007). After all, long-term contracts between a dominant supplier, on the one hand, and customers, on the other, might prevent other suppliers from gaining access to uncommitted generation or to customers. As a result competition is seriously hindered. In this chapter we analyse from an empirical perspective the significance of long-term contracts in the Dutch electricity market and its impact on competition in this market. How essential are...

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