MARKET POWER MITIGATION PROPOSALS FOR THE SPANISH WHOLESALE ELECTRICITY MARKET

The Spanish Electric Power Act intends to establish an electricity market carried out in a coordinated way according to the principles of free competition. Its resulting market price is aimed at being passed-through to consumers, but unfortunately it has not yet played the central role characteristic of a well-functioning power market. There is a main reason behind the verified lack of trust the regulator (the administration) shows in the market: the horizontal concentration that characterizes the wholesale market. This distrust happens to be the reason behind some other negative regulatory design flaws, for instance, a mechanism of stranded costs recovery that has severely interfered with the market functioning and the fact that the tariff design does not fully pass-through this market price to consumers. The main purpose of the “White Paper for the reform of the regulatory scheme of the power generation in Spain”, Pérez-Arriaga (2005), is to settle the regulatory conditions to revert this situation. This paper develops its main proposal, aimed at tackling the negative impact that the particular structure of the Spanish wholesale market has on the overall regulatory design.