A case study of the competitiveness in the Nordic energy market: during November 2002 to December 2003

Abstract: The debate on whether or not the Nordic electricity market is competitive has been an intensely debated economic subject in recent times. The opinions amongst economists as well as politicians are all but homogenous; there are those that mean that the Nordic market has functioned in a desirable way and those that mean that it has not. This paper focuses on a few economic models that can help to analyse the functionality of the Nordic market. Furthermore, the analysis of this paper is complemented by an extensive data gathering that has made it possible to estimate marginal costs for each hour during the period that this paper analyses. With the help of these real time marginal costs and other economic models this paper comes to the conclusion that there is no sufficient evidence to prove that the Nordic market does not function in a desirable way. Despite this, the paper raises a few concerns whether there indeed may be a certain degree of strategic behaviour amongst the large electricity-producing firms active in the Nordic market. With the help of the Nordic competition authorities a few final suggestions, such as a decrease in cross-ownership, an increase in output and dividing the larger companies into smaller ones (or selling out there production) are presented as ways in which the Nordic market could improve further.