Market Integration and Economic Efficiency at Conflict? Commitments in the Swedish Interconnectors Case

M. Sadowska, Bert Willems

Research output: Working paperDiscussion paperOther research output

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Abstract

Abstract: According to the European Commission, Svenska Kraftnät, the Swedish network operator, might have violated competition rules by limiting cross-border transmission capacity to relieve congestion within Sweden. Eventually, the case was settled and Svenska Kraftnät offered commitments to address the Commission’s concerns. As an interim remedy, it committed to reduce transmission flow of electricity on internal network bottlenecks primarily by introducing national measures and by not reducing interconnection capacity. As a final remedy, Svenska Kraftnät agreed to split the Swedish market into multiple price zones. Congestion within Sweden would then be solved by adjusting the prices of those zones. We analyse the economic effects of the alleged abuse and the remedy package. We make three observations. Firstly, it might be socially optimal to reduce cross-border capacity in response to internal congestion. Hence, without an in-depth economic analysis the Commission risked preventing efficient behaviour. Secondly, the interim remedy of handling internal congestion primarily by national measures is not socially optimal, and it cannot be ruled out that it reduces overall welfare. Thirdly, even though splitting the market into price zones may improve allocative efficiency within Sweden, it does not prevent Svenska Kraftnät from potential manipulation of cross-border transmission capacity.
Original languageEnglish
Place of PublicationTilburg
PublisherTILEC
Number of pages25
Volume2012-027
Publication statusPublished - 2012

Publication series

NameTILEC Discussion Paper
Volume2012-027

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Congestion
Remedies
Economic efficiency
Market integration
Cross-border
Sweden
Electricity
Abuse
Interconnection
Market price
Economic analysis
Manipulation
Allocative efficiency
Operator
Economic effect
European Commission

Keywords

  • European energy markets
  • transmission congestion
  • competition policy
  • Article 102 TFEU
  • Swedish network

Cite this

Sadowska, M., & Willems, B. (2012). Market Integration and Economic Efficiency at Conflict? Commitments in the Swedish Interconnectors Case. (TILEC Discussion Paper; Vol. 2012-027). Tilburg: TILEC.
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Market Integration and Economic Efficiency at Conflict? Commitments in the Swedish Interconnectors Case. / Sadowska, M.; Willems, Bert.

Tilburg : TILEC, 2012. (TILEC Discussion Paper; Vol. 2012-027).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Market Integration and Economic Efficiency at Conflict? Commitments in the Swedish Interconnectors Case

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AU - Willems, Bert

N1 - Pagination: 25

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N2 - Abstract: According to the European Commission, Svenska Kraftnät, the Swedish network operator, might have violated competition rules by limiting cross-border transmission capacity to relieve congestion within Sweden. Eventually, the case was settled and Svenska Kraftnät offered commitments to address the Commission’s concerns. As an interim remedy, it committed to reduce transmission flow of electricity on internal network bottlenecks primarily by introducing national measures and by not reducing interconnection capacity. As a final remedy, Svenska Kraftnät agreed to split the Swedish market into multiple price zones. Congestion within Sweden would then be solved by adjusting the prices of those zones. We analyse the economic effects of the alleged abuse and the remedy package. We make three observations. Firstly, it might be socially optimal to reduce cross-border capacity in response to internal congestion. Hence, without an in-depth economic analysis the Commission risked preventing efficient behaviour. Secondly, the interim remedy of handling internal congestion primarily by national measures is not socially optimal, and it cannot be ruled out that it reduces overall welfare. Thirdly, even though splitting the market into price zones may improve allocative efficiency within Sweden, it does not prevent Svenska Kraftnät from potential manipulation of cross-border transmission capacity.

AB - Abstract: According to the European Commission, Svenska Kraftnät, the Swedish network operator, might have violated competition rules by limiting cross-border transmission capacity to relieve congestion within Sweden. Eventually, the case was settled and Svenska Kraftnät offered commitments to address the Commission’s concerns. As an interim remedy, it committed to reduce transmission flow of electricity on internal network bottlenecks primarily by introducing national measures and by not reducing interconnection capacity. As a final remedy, Svenska Kraftnät agreed to split the Swedish market into multiple price zones. Congestion within Sweden would then be solved by adjusting the prices of those zones. We analyse the economic effects of the alleged abuse and the remedy package. We make three observations. Firstly, it might be socially optimal to reduce cross-border capacity in response to internal congestion. Hence, without an in-depth economic analysis the Commission risked preventing efficient behaviour. Secondly, the interim remedy of handling internal congestion primarily by national measures is not socially optimal, and it cannot be ruled out that it reduces overall welfare. Thirdly, even though splitting the market into price zones may improve allocative efficiency within Sweden, it does not prevent Svenska Kraftnät from potential manipulation of cross-border transmission capacity.

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KW - competition policy

KW - Article 102 TFEU

KW - Swedish network

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BT - Market Integration and Economic Efficiency at Conflict? Commitments in the Swedish Interconnectors Case

PB - TILEC

CY - Tilburg

ER -