The impact of contract for difference on the market power in the restructured Zhejiang electricity market

Abstract

Exercise of market power of electricity companies harms market competition and electricity consumers. This paper provides some insights into the market power in the restructured Zhejiang electricity market (ZEM) in China. ZEM is described in various perspectives. Three dominant generation companies in ZEM are most likely to exercise market power. Two market power measurements, the Herfindal-Hirschman index (HHI) and price mark up, are discussed. Based on the real-time market data in 2002, HHI is then calculated to measure the market power in ZEM. The HHI and the real-time price and demand data show that the market power in ZEM during 2002 is modest. Contracts for differences (CfDs) in the financial market of ZEM are analyzed with a particular emphasis on their mitigation on the market power in ZEM. The mitigation is believed to be one reason of the modest market power in ZEM in 2002.