Deregulation and Common Carriage in the Nordic Power System *

In this paper we analyze deregulation and integration of the Nordic markets for electric power. Nordic trade in electricity is controlled by national monopolies and is confined to occasional power. No transit is allowed. Due to its central location, Sweden plays a crucial role in the Nordic electricity market. For Sweden, common carriage without some form of compensation is not likely to be an acceptable form of integration. The Shapley values reveal that compensatory demands are likely to be quite large—a fact which might complicate negotiations on the introduction of common carriage. An alternative to common carriage would be for Sweden to exert market power through monopolistic pricing of its transmission services. Government involvement may be necessary to secure a successful integration of international electricity markets.