Abstract
Governments have regarded the electricity industry as a leading industrial sector
throughout the history. Because of its strategic importance to industrial
development, its impacts on the social and environmental issues and its natural
monopoly characteristics, it has been seen necessary to regulate electricity
industry effectively. However, in the mid 1980s it was realised that even though
transmission and distribution networks are natural monopolies, the scale
economies in electricity production at the generating unit level had exhausted at
a unit size of about 500 MW. This meant that supply and generation had become
potentially competitive activities. In Finland the new Electricity Market Act
(EMA) came into force in 1.11.1995. According to it the production and supply of
electricity became deregulated and competition was introduced to the industry.
The main aim of the law was to improve efficiency.
This dissertation analyses, both theoretically and empirically, the impacts of
deregulation to the Finnish electricity markets. In chapter two we discuss on the
grounds and incentives of the deregulation processes that have been carried out
in different countries. We also determine the crucial factors in order succeed in
the deregulation process. According to our view the success depend on
the number of active players in the wholesale market,
the rules of the bidding procedure, the
organisation of the demand side operation, the neutrality of
transmission grid, the structure of production
technologies and the ownership structure of the
industry.
In chapter three we theoretically model the profit maximising behaviour of the
Finnish electricity companies based on different stages of vertical integration
and on different stage of competition. According to our results the profit
maximising pricing rules of distribution units is dependent on the stage of
integration and on the stage of competition. The separated distribution company
maximises profits by setting the distribution price equal to the long-run
marginal costs plus mark-up determined by price elasticity of demand. The
integrated distribution unit has to take also the impacts on the supply unit into
account when setting the distribution price.
Chapter four considers the consequences of deregulation to the wholesale price of
electricity and the market structure of the industry. It is interesting to
question whether deregulation in some circumstances may lead to higher prices
instead of lower ones. The relationship between the Cournot equilibrium on the
one hand and Bertrand equilibrium on the other will be quantitatively explored.
The results indicate that deregulation can result in a significant price increase
and output decrease in Finland if there occurs Cournot type of competition.
In chapter five we consider alternative pricing policies for a regulated
distribution company and empirically analyse is it possible to achieve welfare
improvements by changing the prevalent price structure to the more efficient one.
We use four different pricing methods which are marginal cost pricing, fully
distributed cost pricing (FDC), Ramsey pricing and optimal two-part tariffs. The
results indicate that it is possible to improve welfare quite markedly by
switching from the existing pricing principles to more efficient ones. The
resulting welfare is highest if we use the first best prices based on marginal
costs or optimal two-part tariffs.
| Identifer | oai:union.ndltd.org:oulo.fi/oai:oulu.fi:isbn951-42-6613-7 |
| Date | 08 February 2002 |
| Creators | Kopsakangas-Savolainen, M. (Maria) |
| Publisher | University of Oulu |
| Source Sets | University of Oulu |
| Language | English |
| Detected Language | English |
| Type | info:eu-repo/semantics/doctoralThesis, info:eu-repo/semantics/publishedVersion |
| Format | application/pdf |
| Rights | info:eu-repo/semantics/openAccess, © University of Oulu, 2002 |
| Relation | info:eu-repo/semantics/altIdentifier/pissn/1455-2647, info:eu-repo/semantics/altIdentifier/eissn/1796-2269 |
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