Electricity Retailers’ Behavior in a Highly Competitive Nordic Electricity Market

Abstract

The integration of the national electricity retail markets in the Nordic region is expected to intensify competition among retailers. At the same time, technological developments will make possible the creation of a smart electricity grid that includes smart meters, two-way communication and real-time pricing. With the help of smart-meter technologies, retailers will be able to significantly increase the range of their service offers, allowing customers to choose from a variety of retail products. We describe the present status of the Nordic retail market for electricity and discuss the likely impact of a pending regulatory change to the common Nordic end-user market based on the functionalities offered by smart metering. In particular, we investigate the effects on competing retailers’ profit, price markup and service investment by formulating a nonlinear program and solving it for numerical values that have been calibrated to be close to reality. The results from model simulations for a two-retailer case indicate that price and service decisions made by one retailer have a strong impact on the market strategy of the other. The range of this impact depends on the overall level of price markup values.