Hydro power : an econometric analysis of market power exertion in the nordic electricity market

Abstract

The thesis examines the major hydro producers’ exertion of market power in the Nordic wholesale electricity market, Nord Pool, in the period from 2014 through 2016. Building on the economic notion that only firms with market power dictate their production according to the price elasticity of demand, I build an IV regression model that isolate the effect of changes in this price responsiveness on spot prices in the day-ahead market. The main results show that a reduction of 0.1 in elasticity is associated with an increase in spot prices of about 2 €/MWh. This advocate that the hydro suppliers had limited, but statistically significant, market power in the sample period.