Market Power in the German Wholesale Electricity Market: What are the Political Options?

Abstract

This paper evaluates four publicly discussed policy options to mitigate market power in the German wholesale electricity market. These four options are: a regulatory solution favoured by the Federal Ministry for Economics and Technology, the implementation of a day-ahead flow-based market coupling in the Central West Region advocated by five European regulators, the expansion of cross border capacity as stipulated by the European Commission and the divestiture of dominant suppliers as proposed by the Hessian Ministry of Economics. The following questions are answered in this paper: are these options adequate measures to mitigate market power? What are the intended and non-intended effects on market efficiency? How likely is the political implementation?