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Unilateral Market Power; Evidences from Iran Wholesale Electricity Market

Rahmati, Mohammad Amin | 2023

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 56157 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Fatemi Ardestani, Farshad
  7. Abstract:
  8. In the early 21st century, Iran established its wholesale electricity market as part of the restructuring of the power industry. Currently, the majority of electricity trades occur in this market. The simultaneous production and consumption of electricity, along with constraints for new companies to enter the market, make exercising market power a significant consideration in the economics literature. The market mechanism is based on auctions and is supported by a rich-data environment that allows for monitoring of production firms' behavior. This research measures the exercise of unilateral market power in Iran's wholesale electricity market using three months' worth of data for each year of 2016 and 2017. The results show an average increase of 200 Rials/MWh in bid prices for one unit increase of the reverse semi-elasticity in the residual demand function, which increases up to 1,000 Rials/MWh for high-load days. After extracting the effect of bilateral contracts from the residual demand, the net effect of increases in bids is up to 7,000 Rials/MWh for one unit increase of the reverse semi-elasticity in the net residual demand function. Private-sector firms tend to bid more strategically than state-owned firms, with a 4.2 percent increase in bid prices for one standard deviation increase in the net residual demand function for private-sector firms on high-load days. There is evidence of exercising unilateral market power in Iran's wholesale electricity market, particularly on high-load days and for private-sector firms. This market power can be reduced by extending bilateral contracts between firms and demand side. Finally, firms have a tendency to extract the majority of the income available in the market
  9. Keywords:
  10. Wholesale Electricity Market ; Bilateral Transaction ; Market Power ; Residual Demand Curve ; Common Ownership ; Power Market

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