Electricity Reform in Europe
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Electricity Reform in Europe

Towards a Single Energy Market

Edited by Jean-Michel Glachant and François Lévêque

The realisation of a European internal market for energy is still a work in progress. Written by leading European scholars and discussed with major energy stakeholders, this book presents a thorough analysis of the motives and methods needed to achieve a single European energy market.
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Chapter 8: How Well Can One Measure Market Power in Restructured Electricity Systems?

Yves Smeers


1 Yves Smeers2 INTRODUCTION The integration of national electricity systems into a single internal European electricity market is not progressing well, with the result that the level of competition in the sector remains unsatisfactory. This had led to proposals to apply ex ante remedies that directly bear on the structure of national incumbents. These measures involve quantitative recommendations such as virtual auctioning of capacity or divestitures that increase the number of competing firms. The evaluation of these measures partly relies on computable oligopoly models of the restructured electricity sector. This chapter analyses the recent literature of these models and concludes that they are not currently capable of providing the degree of legal and regulatory certainty that the importance of these ex ante remedies requires. The state of the art in these models is such that their results reflect more a set of non-testable assumptions than observed facts or unambiguous theory. More academic work is necessary before these models can be applied in a legal or regulatory context. The conclusion is that the current emphasis on the structure of national electricity market distracts from the fundamental objective to introduce competition in the power sector by integrating the national markets into a single electricity market. The successive ‘Benchmarking Reports on the Implementation of the Gas and Electricity Internal Market’ of the European Commission (EC, 2002, 2003, 2004 and 2005) conclude the lack of integration of the electricity markets of the Members States and the poor development of competition in the sector....

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