Empirical analysis into strategic generator behaviour

The Centre for the study of Regulated Industries (CRI) has today published a paper by Phil Burns, Mike Huggins and Reamonn Lydon of Frontier (London), entitled "Generators strategies in the England and Wales electricity market - a synthesis of simulation modelling and econometric analysis". The aim of the paper is twofold: the first is to identify the type of behaviour that existed in the Pool between 1996 and 2001, both in terms of the number of strategic players that existed, and the type of strategies that they adopted. The Frontier authors find that the collapse in wholesale electricity prices that took place at the end of the 1990s was largely due to the increased fragmentation of the industry that provided much less scope than before for a small number of generators to act strategically. Second, the Frontier authors consider whether measures of concentration of the market can represent a useful guide to understanding market outcomes. They find that if these measures are appropriately refined to take account of the characteristics of electricity markets, then they may indeed provide a useful rule of the thumb to evaluate the impact of structural changes in the market. The paper can be ordered from the CRI website.