Exploring and Quantifying the Impact of Ex-Ante Market Power Mitigation in the Integrated European Day-Ahead Electricity Market

Default Energy Bids (DEBs) lie among the most prominent ex-ante market power mitigation approaches implemented in modern electricity markets. This paper presents a conduct-and-impact methodology for the exploration and quantification of the impact that the enforcement of DEBs would have on the operation of the integrated European day-ahead electricity market as a whole. A quantitative large-scale simulation of the day-ahead market of eighteen European countries has been performed in order to evaluate the effect that the implementation of various DEB levels in the sell orders of thermal generating units would have on the market clearing prices and the associated revenues of market participants. Extensive scenario-based chronological simulations using a specialized and commercially available day-ahead market simulation software for a historical two-month period in 2021-2022 indicated that if thermal generating units were allowed to bid above their average variable cost only by up to 10–30%, day-ahead market clearing prices in most European countries would decrease, also leading to lower market revenues from −5.2% up to −9.9% for all market participants. The proposed methodology is directly applicable to unit-based day-ahead electricity markets in Europe. An extension to European portfolio-based day-ahead markets is also proposed.