Zonal Pricing and Demand-Side Bidding in the Norwegian Electricity Market

This paper analyzes prices in the day-head electricity market in Norway. The authors consider the hypothesis that generators are better able to exercise market power when transmission constraints bind, resulting in smaller, more-concentrated markets. They test this hypothesis by comparing equilibrium prices across periods with different demand elasticity and with and without binding transmission constraints. They find some empirical evidence that prices in local markets are higher during constrained periods when demand is less elastic.