Impact of Transmission Network Investments on Market Power in the German Electricity Market

In this paper a model based analysis of competition in the German wholesale electricity market is presented. Applying a multi-regional model which covers the interregional transmission constraints between Germany and its neighboring countries, potential for exercising market power by the four dominant electricity producers has been found. Assuming Cournot behavior in the spot market, it has been analyzed to what extent network investment can lead to enhanced competition. It has also been shown that the impact of transmission reinforcement on market power differs among interconnection lines due to the specific supply and demand structures within the considered markets.