This report aims to provide a methodology to investigate the presence of practices of abuse of market power attributable to the so-called ‘capacity withholding’, i.e. the practice of preventing available generation capacity from being offered competitively on the wholesale electricity market, even if offering such capacity competitively would result in profitable transactions at prevailing market prices.
A methodology based on the analysis of historical market data is therefore proposed for the ex-post detection of potential capacity withholding behavior: this methodology is based on a ‘reductio ad absurdum’: the assumption is that capacity withholding behavior has occurred at every hour during the analysis and for this reason every operator is potentially suspected of such behavior. An analysis of the historical data relating to the year 2020 identified the four main market operators. For each of these market operators, the methodology defined two scenarios: a basic scenario which uses the past offers to the market by the operator and replicates the solution for all market areas in Italy, and a sensitivity scenario where the energy offered by the operator exceeds the historical values by a given percentage.
The developed scenarios are compared with each other in order to detect any changes in terms of prices and zonal revenues; for these scenarios it was decided to increase the capacity offered on the market by 2% compared to past offers.
The results are anonymized, since the study aims to describe the implemented methodology and its potential effectiveness, thus proposing itself as a suitable tool for this purpose; the report is therefore not aimed at detecting which operator could have altered the results in terms of market prices and its own revenues.
It must be taken into account that the results shown in this work can highlight any hours of the year in which some operators could have altered the zonal prices in the day-ahead market to increase their own revenues (and the revenues of all other market operators whose offers were accepted in those same hours). This study allows, therefore, for the identification of the hours in which, potentially – only potentially – these actors may have benefited from the implementation of behaviors attributable to capacity withholding strategies. The scope of this study and its objectives do not include the assessment of whether, in those hours, the selected operator actually had greater capacity available that was not offered on the market without a valid underlying reason.