Market Power on the German Markets for Primary and Secondary Reserve Power
No. 370 / July 2012
(Full version only available in German)
This discussion paper examines market power and potential abuse of market power on the markets for primary and secondary reserve power in Germany. The considered periods last from 01.12.2007 until 27.06.2011 (primary reserve) and from 01.07.2008 until 27.06.2011 (secondary reserve). Changes within the market design of the secondary reserve in the considered period seem to make it reasonable to divide it in three sub-periods to be able to assess the development more accurately.
While on the market for primary reserve there is only one product, on the market for secondary re-serve there is a differentiation in positive and negative reserve as well as in peak and off-peak times, so that there are four products. While on the market for primary reserve only the price per kW is subject of the auction, the provision of secondary power is driven by the price per kW in the first instance, the call of reserve power by the price per kWh thereafter. The latter is not part of this research due to its low impact on the overall turnover.
The analysis shows high concentration rates for both markets due to a low number of suppliers that increase over time, however. While in the market for primary reserve there is no single supplier with market power following the definition of German Competition Law, this is true for nearly all products and periods on the market for secondary reserve. In the market for primary reserve there are three, in the market for secondary reserve four big players. In both markets there are suppliers that have a high scope to set prices according to PSI and RSI. However, the smaller suppliers own higher market shares in the market for primary reserve than in the market for secondary reserve. The bidding strategies of suppliers are very different on both markets. While in the market for primary reserve a flat supply curve seems to be connected with a higher success rate, on the market for secondary reserve no clear success strategy is visible. On the market for primary reserve one supplier often sets the marginal price. Whether that goes hand in hand with a barometric price leadership remains unclear. The development of EEX and OTC prices for the same period seem to object such an assumption.
On the market for secondary reserve the conspicuous price development of negative reserve power at off-peak times seems to have its reason in the withdrawing of capacities by a supplier that has market power. A comparison with a reference price is not possible due to available data an different strategy options of the reference power plant (pump storage). Whether capacity has been withdrawn in an abusing manner of market power remains unclear. The increase in capacity by the said supplier at the end of the period under consideration and a general decrease in prices connected to it objects this assumption.
Discussion Paper is available for download.
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