Types of Analysis to Determine Extent of Market
Power and Opportunities for Gaming
- Examine market structure with respect to ownership
to determine the level of market concentration and degree of competitiveness
overall.
- who (company) owns which (plants) where (location)
- degree of vertical integration (generation,
transmission, distribution)
- market concentration: HHI for different markets
- how are plants distributed among the owners
- Examine each owner’s plant portfolio to
determine availability, marginal costs, and flexibility characteristics with
respect to technical and contractual constraints.
- type: hydro, coal, gas, etc.
- size: MW
- availability
- cost
- characteristics: minimum down time, ramp up,
etc
- location
- which ones are likely to be constrained-on
plant
- which ones have set the pool price
- new capacity additions
- what proportion of time is each generator
able to set the marginal price?
- Examine supply stack in different periods to determine the shape of the
bid function and which plants are likely to set the price in which time periods.
- week day vs weekends
- during the day for peak and offpeak
- during year for different seasons
- steepness of the pool-wide production cost curve on a given day
- Examine demand (load) to determine demand effects on price. Initial analysis
shows that there is little relationship between demand and price because of
the predominance of hydro-generation.
- week day and weekends
- during the day for peak and offpeak
- during year for different seasons
- size of the peak hour demand on a given day
- Examine price behaviour to determine drivers of price. Why do prices behave
so differently from day to day in some months?
- how often do spikes occur (frequency over time)
- difference between demand-weighted and time-weighted system marginal prices
- compare for different seasons, weekday vs weekend
- under which circumstances do these spikes occur
- are they due to genuine capacity shortage, unexpected demand?
- volatilities for different periods (within the day, within the year) due
to the clustering effect
- Examine the contract market and the effects on trading activity in the pool.
- vesting contracts (contracts in place in the beginning)
- generator displacement contracts
- risk management contracts (contracts for differences)
- the nature of take-or-pay versus take-and-pay contracts
- Examine must-runs and other constraints as they have great influence on
setting price.
- what would activate these constraints
- when are they most likely to occur
- how big are they
- how many are there
- For hydro-dominated pools, understand hydro water value calculation to gain
insight into the relationship between available capacity and marginal cost
of hydro-generation as well as bidding strategies.
- methodology
- rationing policy
- how does seasonal hydrology affect different types of plant
- Understand the details of pool rules to find loop holes for gaming.
- Keep up to date on regulatory changes and privatisation initiatives as these
would affect the market participants.
- Perform the above analysis for data to see if the price behaviour (steep
spikes, high volatility) seen in the first year continues.
- demand (volume) vs time weighted averages
- more holistic analysis in the context of macro-economic indicators
- Compare with neighbouring countries for regional influence.
- in depth understanding
- effects of ownership (market structure)
- effects of capacity diversity
- pool rules
- cost versus price bids
- the shape of supply curves
- how other countries in the region are privatising and restructuring their
energy industries