Wind-Generated Congestion and Market Power: Evidence from a Hydropower-Based Electricity Market

Abstract: Intermittent sources of electricity are gaining market shares in the Nordic region. With wind-power geographically concentrated and separated from high demand regions, the flow of electricity in the grid increases, with congestion of transmission lines as a direct consequence. I illustrate that if large producers in an importing area can predict hours of binding transmission constraints, ability to exercise market power is increased. This thesis tests if hydropower producers in Sweden predict wind-generated congestion to increase prices when import constraints become binding. I find evidence that the dominant producer in Sweden produced relatively less than its smaller competitors during congested hours in 2015 and 2016. Furthermore, when wind-generated electricity production were predicted to be high (in the 75th percentile) and transmission lines were congested, hydropower producers withheld 8.9% of production in relation to comparable hours under no import constraint.