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Allocating Transmission to Mitigate Market Power in Electricity Networks

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Author Info

  • Richard Gilbert
  • Neuhoff, K.
  • Newbery, D.

Abstract

We ask what conditions transmission contracts increase or mitigate market power. We show that the allocation process of transmission rights is crucial. In an efficient arbitraged uniform price auction, generators will only obtain contracts that mitigate their market power. However, if generators inherit transmission contracts or buy them in a ‘pay-as-bid’ auction, then these contracts can enhance market power. In the two-node network case, banning generators from holding transmission contracts that do not correspond to delivery of their own energy mitigates market power. Meshed networks differ in important ways as constrained links no longer isolate prices in competitive markets from market manipulation. The paper suggests ways of minimising market power considerations when designing transmission contracts.

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File URL: http://www.econ.cam.ac.uk/electricity/publications/wp/ep07.pdf
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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0225.

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Length: 37
Date of creation: Oct 2002
Date of revision:
Handle: RePEc:cam:camdae:0225

Note: CMI IO, Updated version: 1 April 2003
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Web page: http://www.econ.cam.ac.uk/index.htm

Related research

Keywords: electricity; contracts; auction; network; transmission;

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  1. Paul L. Joskow & Richard Schmalensee, 1988. "Markets for Power: An Analysis of Electrical Utility Deregulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262600188, January.
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