Market power in the Nordic electricity market

This paper investigates the potential for market power in the Nordic electricity power market. Numerical simulations have been conducted using ECON's model for the electricity market. A special case of a supply curve equilibrium model is used to describe strategies of the large producers. The conclusion is that the largest producer, Vattenfall, has incentives to withdraw some nuclear capacity from the market in order to raise spot market prices. However, Vattenfall's incentives are to some extent limited by the excess capacity of the smaller producers. The model also indicates that it may be profitable for Vattenfall to operate its nuclear plants at full capacity if market prices increase due to exogenous factors, e.g. consumption growth. The simulations do not indicate that hydro production will be withheld, because of the low marginal operating costs in these plants.