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Competition in European Electricity Markets

A Cross-country Comparison

Edited by Jean-Michael Glachant and Dominique Finon

This book focuses on the diversity of electricity reforms in Western Europe, drawing evidence from ten European Union memberstates plus Norway and Switzerland as associate members. The contributors analyse the various ways of introducing competition in the European electricity industries, and consider both the strategies of electricity companies and their behaviour in electricity marketplaces. They also offer an explanation of the differences of reforms by the institutions and the industrial structures of each country which shape the types of marketrules, industrial restructuring and public service regulations which have been adopted.
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Chapter 7: Competition and Market Power in Northern Europe

Ole Jess Olsen and Klaus Skytte


Ole Jess Olsen and Klaus Skytte INTRODUCTION Northern Europe provides an interesting case study with respect to the development of competition in the electricity supply industry. Transmission lines and established rules for exchanging power have long since integrated the electricity utilities in the four Nordic countries, Denmark, Finland, Norway and Sweden, facilitating beneficial exchanges between hydropower and thermal power. Finland, Norway and Sweden were among the first European countries to implement radical national reforms and to institutionalize cross-border trade. The focus of this chapter is on the development of a common electricity market in Northern Europe. We will also include Germany in our study, as it is becoming increasingly connected to, and integrated with, the power market in the four Nordic countries.1 Increased cross-border competition is an obvious means to improve competition. However, the persistence of market imperfections can create obstacles for the achievement of efficient competition. Such market imperfections are likely to be amplified by different national traditions and different institutional choices for the electricity supply industry. The chapter starts with a short introduction to the electricity market in the five countries, and the economic and environmental advantages to be gained from further integration and cross-border competition. In the next section, the main features of the national reforms are presented. We provide more details on Denmark as the other four countries are discussed in other chapters. Then follows a discussion of different types of market power that can be harmful to competition and...

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