A model of the European electricity market. What can we learn from a geographical expansion to EU20

Abstract

This paper presents the static computational game theoretic COMPETES (COmprehensive Market Power in Electricity Transmission and Energy Simulator) model version 2.0. This model can be used to study various policy question regarding economic and environmental effects of a fully opened European electricity market. The COMPETES model can take strategic interaction among electricity producing firms into account. The strategic behaviour of generation companies can be reflected in the conjectures each company holds regarding the supply response of rival companies. These response functions simulate expectations concerning how rivals will change their electricity sales when prices change; these expectations determine the perceived profitability of capacity withholding and other strategies. In addition, COMPETES can solve the market outcome under price and quantity competition. COMPETES can also represent different systems of transmission pricing, among them fixed transmission tariffs, congestion-based pricing of physical transmission, and auction pricing of interface capacity between countries. CO2 costs can be brought in as an exogenous variable. In this paper the COMPETES model is calibrated to twenty European countries, EU20 for short, namely Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Hungary, Italy, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, Switzerland, UK/England & Wales. These countries have been chosen because they are geographically adjoined, their electricity networks are well connected (UCTE, Nord Pool, UK), they are members of the European Union (except for Norway and Switzerland) and data is quite reliable (which would for instance not be the case for the Balkan countries). The level of detail in the COMPETES model is quite extensive. The model contains various characteristics of 7531 power plants in the EU20 area (acquired from the database on World Energy Power Plants). These characteristics comprise among others the generation capacity (of at least 10 MW), production technology, and plant ownership. Availability, energy efficiency, CO2 emissions, and fuel costs per production technology are collected from other sources. Firms