Brussels, 20th April 2007
The study carried out a detailed analysis of the wholesale electricity markets of six Member States – Belgium (BE), Germany (DE), Spain (ES), France (FR), the Netherlands (NL), and Great Britain (GB, the United Kingdom excluding Northern Ireland) - for the period 2003 to 2005. The study is the first of its kind, as it is based on a unique database of more than one billion data points essentially provided by market operators themselves, and analyses hourly data on virtually all power plants in each market. The study consists of three parts.
The first part of the study looks at how many operators are effectively competing on the market on an hourly basis, looking both at available installed capacity and effective generation. In addition to standard economic analyses such as concentration ratios and HHI indexes, the report includes other measurements more specific to the electricity sector, such as the Pivotal Supplier Index and the Residual Supplier Index which measure how far a particular generator is needed to supply the demand. The results for these indices are given for all large generators on each market. The study confirms the findings of the Sector Inquiry that most markets are concentrated whatever the measurement adopted.
The second part of the study reports on the difference between what the price of the market was in the period and what it would have been if the markets in DE, ES, NL, and UK had been perfectly competitive. This difference, referred to in the study as the "mark-up", was calculated by simulating a perfectly competitive market for each hour of the period using dedicated state-of-the-art computer software that is commonly used by operators to choose the most cost-effective production assets in their own portfolio. The model takes into account existing imports and exports, as well as the complex technical constraints that exist on plants, including actual outages reported during the period investigated. The study also confirmed that the price of the simulated competitive market would allow the generators in these four countries to cover their fixed costs.
The study shows that the mark ups vary over time and between Member States. Mark-ups are generally higher in DE and ES, and lower in GB and NL. The mark-up identified in the study is not the same as the profit of each company. Profits depend on many other factors (type of plants owned, amortisation of the plants, sale channels used etc). However higher mark-ups will usually mean higher profits.
No conclusions are drawn for FR and BE as there are problems with the underlying data, such as the lack of information about the amortisation of French nuclear plants, and the absence of a reliable market price for Belgium.
This second part of the study also examines the impact of fuel prices, with the largest price rises being in NL and GB, essentially due to the large fleet of gas-fired plants in those markets. By contrast the impact of fuel price rises was less material in DE and ES, i.e. countries characterised by higher mark-ups.
The third part of the study looks at the relationship between the number of operators competing at a given time and the "mark-ups". It does this by submitting the results of the two first parts to a detailed regression analysis on an hourly basis. This analysis shows that there is a statistically relevant correlation between the numbers of generators who have spare capacity and the mark-ups in each hour: in other words, the more needed generators are, the higher the mark-ups in the market become. The analysis corrected for some other possible causes of higher mark-ups such as the lack of electricity generating capacity of the whole market and peak and seasonal variations in demand, but the correlation between mark-ups and indispensability of certain operators was confirmed.
The third part of the report also compares the level of production of the main generators during the period to what it would have been under perfect competition: differences between operators are significant, and some operators seem to have not made full use of their generation capacity.
Further information on the sector inquiry and the full report of the study are available at: