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ASSESSING THE INTEGRATION OF ELECTRICITY MARKETS USING PRINCIPAL COMPONENT ANALYSIS: NETWORK AND MARKET STRUCTURE EFFECTS
Author(s) -
EVANS LEWIS,
GUTHRIE GRAEME,
VIDEBECK STEEN
Publication year - 2008
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/j.1465-7287.2007.00054.x
Subject(s) - electricity market , electricity , market segmentation , market structure , investment (military) , market integration , economics , industrial organization , market microstructure , competition (biology) , market power , principal component analysis , factor market , market analysis , business , microeconomics , order (exchange) , finance , marketing , computer science , ecology , monopoly , artificial intelligence , politics , political science , law , electrical engineering , biology , engineering
Market power in electricity wholesale spot markets is more likely if there is market segmentation. We show that principal component analysis is a natural tool for the qualitative and quantitative assessment of the presence of local markets. We study whether the New Zealand market has been a national market or a set of local markets since its inception in 1996 and find that increased competition induced some segmentation that was eliminated by transmission enhancement and the introduction of generation downstream from the constrained circuits. Transmission investment policy that ensures one market will contribute to the efficiency of electricity, water, and related other markets. ( JEL D4, L1, L4)