SUMMARY OF THE CONCEPTS,
THEORIES AND SUBJECTS
Regulating Energy Markets: EBM148B05
Abstract
An extensive summary of the discussed concepts, Theories and subjects of the course Regulating
Energy markets at the University of Groningen. The summary is in alphabetic order.
Dennis Takens
,Table of contents
A..................................................................................................................................................2
B..................................................................................................................................................3
C...................................................................................................................................................4
D..................................................................................................................................................7
E.................................................................................................................................................15
F.................................................................................................................................................22
G................................................................................................................................................24
H................................................................................................................................................26
I..................................................................................................................................................28
K.................................................................................................................................................32
L.................................................................................................................................................32
M...............................................................................................................................................35
N................................................................................................................................................42
O................................................................................................................................................45
P.................................................................................................................................................45
R................................................................................................................................................50
S.................................................................................................................................................56
T.................................................................................................................................................62
U................................................................................................................................................68
V................................................................................................................................................69
W...............................................................................................................................................69
Y.................................................................................................................................................70
Z.................................................................................................................................................71
1
,A
Adverse selection: One party in a transaction cannot distinguish between high- and low-
quality goods or partners, leading to outcomes where low-quality options dominate the market
- Solution:
o Using information of benchmark firms. (similar firms in different regions
Yardstick regulation
econometric analysis of efficient costs
o Offer a menu of regulatory options
Let firms choose between for example, fixed tariffs or cost-based tariffs
The firm’s choice reveals its internal view on its cost reduction
potential, giving the regulator insights in its efficiency
Antitrust: refers to a set of laws and policies designed to prevent abuse of market power and
to promote fair competition in markets.
- The goal is to ensure that no single company (or group of companies) can dominate a
market in a way that harms consumers or blocks new competitors.
- Relevance:
o In sectors where market power exists but competition is still possible (e.g., tech
platforms, supermarkets, telecom providers).
o It is not suited for natural monopolies (like electricity or gas grids), where
competition is structurally unworkable — in those cases, regulation is
preferred.
- Objectives:
o Prevent monopolies: Avoid situations where one company controls the entire
market without competition.
o Stop anti-competitive practices: This includes price-fixing, market sharing,
bid-rigging, or abusing a dominant position (e.g. charging unfair prices or
limiting output).
o Control mergers and acquisitions: Antitrust authorities assess whether large
mergers could reduce competition and harm consumer choice or prices.
- antitrust rules are enforced by the European Commission and national authorities
(like the ACM in the Netherlands).
Arrow or replacement effect: A monopolist may have less incentive to innovate than a
competitive firm, because any new technology will only replace the monopolist’s existing
profits, not create new ones.
Asset beta: the relationship between the returns on investment of a specific firm to the returns
on investing in the market portfolio
- the asset beta of the total market portfolio is 1 (lowest possible)
2
, - Why is the asset beta low for energy networks?
o Because energy is a commodity good, people need energy
B
Backwardation: Phenomenon that occurs when the current price is not representative of the
true price. People expect that the price would go down. Therefore sellers are willing to sell
gas for less in the future (forward market) than today’s price, because they prefer the certainty
or want to avoid costs or risks
Balancing market/system: The balancing market is the last-minute, real-time mechanism
that the grid operator (TSO) uses to keep the electricity system stable when unexpected
deviations occur from planned schedules.
- If there’s a shortage, the TSO activates extra producers (↑ supply).
- If there’s a surplus, the TSO reduces production (↓ supply).
- These actions are paid through the balancing market — often more expensive than
other markets.
- 15 minutes in advance
- On system level:
o total generation + import <> total consumption + export (this holds per
balancing area per second)
- On individual level:
o act in real time according to the ex ante programme (to their commitments)
o (this holds for every party with programme responsbility per ISP)
Balancing the grid:
- Done by all the TSO’s of all the connected countries together
3
THEORIES AND SUBJECTS
Regulating Energy Markets: EBM148B05
Abstract
An extensive summary of the discussed concepts, Theories and subjects of the course Regulating
Energy markets at the University of Groningen. The summary is in alphabetic order.
Dennis Takens
,Table of contents
A..................................................................................................................................................2
B..................................................................................................................................................3
C...................................................................................................................................................4
D..................................................................................................................................................7
E.................................................................................................................................................15
F.................................................................................................................................................22
G................................................................................................................................................24
H................................................................................................................................................26
I..................................................................................................................................................28
K.................................................................................................................................................32
L.................................................................................................................................................32
M...............................................................................................................................................35
N................................................................................................................................................42
O................................................................................................................................................45
P.................................................................................................................................................45
R................................................................................................................................................50
S.................................................................................................................................................56
T.................................................................................................................................................62
U................................................................................................................................................68
V................................................................................................................................................69
W...............................................................................................................................................69
Y.................................................................................................................................................70
Z.................................................................................................................................................71
1
,A
Adverse selection: One party in a transaction cannot distinguish between high- and low-
quality goods or partners, leading to outcomes where low-quality options dominate the market
- Solution:
o Using information of benchmark firms. (similar firms in different regions
Yardstick regulation
econometric analysis of efficient costs
o Offer a menu of regulatory options
Let firms choose between for example, fixed tariffs or cost-based tariffs
The firm’s choice reveals its internal view on its cost reduction
potential, giving the regulator insights in its efficiency
Antitrust: refers to a set of laws and policies designed to prevent abuse of market power and
to promote fair competition in markets.
- The goal is to ensure that no single company (or group of companies) can dominate a
market in a way that harms consumers or blocks new competitors.
- Relevance:
o In sectors where market power exists but competition is still possible (e.g., tech
platforms, supermarkets, telecom providers).
o It is not suited for natural monopolies (like electricity or gas grids), where
competition is structurally unworkable — in those cases, regulation is
preferred.
- Objectives:
o Prevent monopolies: Avoid situations where one company controls the entire
market without competition.
o Stop anti-competitive practices: This includes price-fixing, market sharing,
bid-rigging, or abusing a dominant position (e.g. charging unfair prices or
limiting output).
o Control mergers and acquisitions: Antitrust authorities assess whether large
mergers could reduce competition and harm consumer choice or prices.
- antitrust rules are enforced by the European Commission and national authorities
(like the ACM in the Netherlands).
Arrow or replacement effect: A monopolist may have less incentive to innovate than a
competitive firm, because any new technology will only replace the monopolist’s existing
profits, not create new ones.
Asset beta: the relationship between the returns on investment of a specific firm to the returns
on investing in the market portfolio
- the asset beta of the total market portfolio is 1 (lowest possible)
2
, - Why is the asset beta low for energy networks?
o Because energy is a commodity good, people need energy
B
Backwardation: Phenomenon that occurs when the current price is not representative of the
true price. People expect that the price would go down. Therefore sellers are willing to sell
gas for less in the future (forward market) than today’s price, because they prefer the certainty
or want to avoid costs or risks
Balancing market/system: The balancing market is the last-minute, real-time mechanism
that the grid operator (TSO) uses to keep the electricity system stable when unexpected
deviations occur from planned schedules.
- If there’s a shortage, the TSO activates extra producers (↑ supply).
- If there’s a surplus, the TSO reduces production (↓ supply).
- These actions are paid through the balancing market — often more expensive than
other markets.
- 15 minutes in advance
- On system level:
o total generation + import <> total consumption + export (this holds per
balancing area per second)
- On individual level:
o act in real time according to the ex ante programme (to their commitments)
o (this holds for every party with programme responsbility per ISP)
Balancing the grid:
- Done by all the TSO’s of all the connected countries together
3
