An update on the relevant market for wholesale and production of electricity in the Nordics and Baltics

Abstract

This thesis analyses what is the relevant market for wholesale and production of electricity. Delineating the relevant market does not merely require a high correlation between prices but more stringent conditions. This is because a high degree of correlation can be displayed between prices that face the same exogenous shocks but are not a part of the same relevant market. Thus, the analysis utilizes the properties of cointegrated variables, a more stringent requirement when delineating the relevant market. The results suggest that during normal times, i.e., times of normal electricity supply, Finland and Denmark areas belong to the same relevant market, while other areas in the Nordics and Baltics constitute separate mar-kets of their own. However, during times of decreased supply of electricity, Finland and the Baltics are a part of the same relevant market while Denmark and Sweden become more integrated and define a market of their own. Interestingly, all Norwegian areas de-fine separate markets of their own during both normal times and times of decreased supply of electricity. This also indicates that there is not sufficient transmission capacity within Norway to equalize prices in the long run.