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The potential impact of cross-ownership in transmission: An application to the Belgian electricity market

Author

Listed:
  • Guido Pepermans

    (K.U.Leuven-Center for Economic Studies)

  • Bert Willems

    (K.U.Leuven-Center for Economic Studies)

Abstract
This paper looks at the potential effect of partial ownership on the generation and the transmission sector of electricity markets. Ideally, in liberalized electricity markets, transmission is separated form generation. The transmission sector is a natural monopoly operated by a regulated transmission firm, while the generation sector is open for competition. This paper assumes that the transmission firm is not very well regulated and behaves strategically, that there is oligoplistic competition in generation, and that one of the generators, the incumbent, owns part of the transmission firm. We then study the effect of this partial ownership in a numerical model which is calibrated on the Belgian market. The model captures two kinds of partial ownership interactions: passive ownership, where the generation firm simply cashes its share of the transmission firm’s profit without having a direct impact on its decision process, and active ownership, where the generator has a direct influence on the transmission firm’s decision process. It is shown that ownership of the network operator by the incumbent generator reduces double marginalization (= welfare improving) but also reduces entry in the generation market (= welfare decreasing).

Suggested Citation

  • Guido Pepermans & Bert Willems, 2005. "The potential impact of cross-ownership in transmission: An application to the Belgian electricity market," Energy, Transport and Environment Working Papers Series ete0501, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
    • Handle: RePEc:ete:etewps:ete0501
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    References listed on IDEAS

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    1. WEI, Jing-Yuan & SMEERS, Yves, 1999. "Spatial oligopolistic electricity models with Cournot generators and regulated transmission prices," LIDAM Reprints CORE 1454, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Bert Willems, 2000. "Cournot competition in the electricity market with transmission constraints," Energy, Transport and Environment Working Papers Series ete0004, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
    3. Shmuel S. Oren, 1997. "Economic Inefficiency of Passive Transmission Rights in Congested Electricity Systems with Competitive Generation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 63-83.
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    8. Guido Pepermans & Bert Willems, 2004. "Ramsey Pricing in a Congested Network with Market Power in Generation: A Numerical Illustration for Belgium," Energy, Transport and Environment Working Papers Series ete0408, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
    9. SMEERS, Yves & WEI, Jing-Yuan, 1997. "Spatially oligopolistic model with nodal opportunity cost pricing for transmission capacity reservations," LIDAM Discussion Papers CORE 1997026, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    1. Guth, Werner & Nikiforakis, Nikos & Normann, Hans-Theo, 2007. "Vertical cross-shareholding: Theory and experimental evidence," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 69-89, February.

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    More about this item

    Keywords

    vertical integration; unbundling; cross-ownership; electricity;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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