Electricity prices during the energy crisis in Germany: the role of market power

Abstract

During the energy crisis in 2022, electricity prices in Germany soared to unprecedented levels, placing a significant burden on consumers. To explore the drivers of the high electricity prices, we develop an electricity dispatch model that simulates hourly equilibrium prices under the assumption of perfect competition. We then extend this model to account for firms exercising market power. By comparing the outcomes of the perfect competition and Cournot competition models with actual market data, we demonstrate that market power likely contributed to higher prices during the crisis, elevating them beyond what rising input costs alone would justify.

Durante la crisis energética de 2022, los precios de la electricidad en Alemania alcanzaron niveles sin precedentes, afectando gravemente a los consumidores. Para analizar las causas de estos altos precios, desarrollamos un modelo de despacho eléctrico que simula precios de equilibrio horarios bajo el supuesto de competencia perfecta. Luego, ampliamos este modelo para considerar ejercicio de poder de mercado de las empresas. Al comparar los resultados de ambos modelos con datos reales del mercado, demostramos que el poder de mercado probablemente contribuyó al aumento de precios durante la crisis, superando lo que justificaría únicamente el incremento de los costes de insumos.