Analysis of the influence of the interconnections capacity in the Spanish electricity wholesale market

Abstract

Mitigation of market power is ranked very high in importance, when examining the major regulatory issues in the design of liberalized wholesale electricity markets. Diverse solutions have been proposed and tested, in order to reduce the high horizontal concentration and the subsequent existence of market power that many countries have inherited from the previous period of traditional regulation. Increasing the interconnection capacity with neighboring countries is one of the most popular market power mitigation measures.This paper analyzes this possibility for the specific case of the typically congested interconnection capacity between France and Spain. In particular, the paper evaluates the magnitude of the additional interconnection capacity that would be necessary to satisfactorily mitigate market power, concluding that there must be other less expensive means of achieving this objective.