On the complexity of market power assessment in the electricity spot markets

In this paper, the authors point out various factors which should be taken into consideration when assessing market power in the evolving electricity markets. Of particular interest are the effects of the electricity market design rules, type of software employed when computing electricity clearing price, and the generation technology-specific costs, such as start up and shut down costs. In this paper, they propose a method of estimating a benchmark price which accounts for these factors unique to electricity markets; when assessing market power the actual price is compared to this benchmark price. The pros and cons of assessing market power using such aggregate benchmark price and/or more direct analysis of individual bids are illustrated using the New England market data.