Market power in the Australian power market

In this paper, the potential for non-competitive pricing in the new south eastern Australian electricity market is quantified. An empirical model of strategic pricing behaviour is presented and various bidding games are examined. The analysis suggests that, despite the high level of excess capacity in the current system, there are a number of large generation portfolios who will be in a position to adopt non-competitive bidding behaviour, particularly in high demand periods. However, it is also shown that attempts to remove this market power by further break down of plant ownership will threaten the viability of many power plants in the new market.