Year of Graduation
Market Power Analysis in Russian Energy Market
This paper is dedicated to the analysis of the market power and factors influencing it in the Russian market for electricity and power.Analysis is performed for the free flow zone “Ural” which includes Bashkortostan Republic, Perm region (except Perm-Zakamsk and South energy regions of Perm region), Kurgan region, Orenburg region, Sverdlovsk region and Chelyabinsk region.In addition to standard Herfindahl - Hirschman and Lerner indices author uses the modeling of electricity and power market assuming that its structure is similar to an oligopoly in the light of certain premises. On the basis of the constructed models a sensitivity of the market power rate to the change the basic parameters of the simulation is analyzed.Model of competitive behavior of market participants is built in accordance with the methodology described in the works of S. Borenstein. It involves an iterative procedure for equilibrium estimation providing that market participants act as Cournot competitors.During the simulation a number of market equilibrium states corresponding to different volumes of the electricity which consumers wish to purchase were estimated. These different levels are reflected in the demand for electricity function.To construct the demand functions the price elasticity of electricity demand was estimated using a system of simultaneous equations.Constructed model of competitive behavior of market participants showed that the producers in the electricity market have high market power but only with a significant volume of demand. Currently competition in the energy market does not allow producers to set prices substantially above the marginal cost.An additional finding of the analysis is an acute sensitivity of electricity producers’ behavior to changes in the price elasticity of the demand.The main disadvantage of the developed model is its static nature. Model does not involve long-term strategies of participants considering a single interaction. Dynamic model can reveal new patterns of competitive behavior of electricity producers and stronger market power.The model is also limited by assumptions about the ideal state of electricity transmission grids and generation equipment.