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Allocating Transmission to Mitigate Market Power in Electricity Markets

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Author Info

  • Richard Gilbert

    ()
    (University of California, Berkeley)

  • Karsten Neuhoff

    ()
    (University of Cambridge)

  • David Newbery

    ()
    (University of Cambridge)

Abstract

Whether transmission contracts increase or mitigate market power depends crucially on the allocation of transmission rights. In an efficiently arbitraged uniform-price auction, generators will only obtain contracts that mitigate their market power. Contracts inherited or bought in a "pay-as-bid" auction can enhance market power. In the two-node case, banning generators from holding transmission contracts not corresponding to delivery of their own energy mitigates market power. Meshed networks differ in important ways, as constrained links no longer isolate prices from market manipulation. We suggest ways of reducing market power when designing auctions and transmission contracts.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 35 (2004)
Issue (Month): 4 (Winter)
Pages: 691-709

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Handle: RePEc:rje:randje:v:35:y:2004:4:p:691-709

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Cited by:
  1. Rey, Patrick & Tirole, Jean, 2003. "A Primer on Foreclosure," IDEI Working Papers 203, Institut d'Économie Industrielle (IDEI), Toulouse, revised Nov 2005.
  2. Joskow, Paul L., 2008. "Capacity payments in imperfect electricity markets: Need and design," Utilities Policy, Elsevier, vol. 16(3), pages 159-170, September.
  3. Dijk, Justin & Willems, Bert, 2011. "The effect of counter-trading on competition in electricity markets," Energy Policy, Elsevier, vol. 39(3), pages 1764-1773, March.
  4. Muireann Á. Lynch & Richard Tol & Mark J. O’Malley, 2014. "Minimising costs and variability of electricity generation by means of optimal electricity interconnection utilisation," Working Paper Series 6814, Department of Economics, University of Sussex.
  5. Vazquez, Miguel & Hallack, Michelle, 2013. "Need and design of short-term auctions in the EU gas markets," Energy Policy, Elsevier, vol. 63(C), pages 484-493.
  6. Hallack, Michelle & Vazquez, Miguel, 2013. "European Union regulation of gas transmission services: Challenges in the allocation of network resources through entry/exit schemes," Utilities Policy, Elsevier, vol. 25(C), pages 23-32.
  7. Hesamzadeh, Mohammad R. & Biggar, Darryl R. & Hosseinzadeh, Nasser, 2011. "The TC-PSI indicator for forecasting the potential for market power in wholesale electricity markets," Energy Policy, Elsevier, vol. 39(10), pages 5988-5998, October.

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