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Auctions and trading in energy markets -- an economic analysis

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  • Newbery, D.
  • Tanga McDaniel

Abstract

Auctions are playing an increasingly prominent role in the planning and operation of energy markets. Comparing the New Electricity Trading Arrangements to the former electricity Pool in England and Wales requires some analysis of the relative merits of uniform versus discriminatory pricing rules, and use of the gas network in Britain and electricity interconnectors around Europe is allocated on the basis of auction results. In this paper we discuss the changes in the trading arrangements in the electricity industry in England and Wales as well as some of the results to date. We also look at the wider issue of using auctions to replace regulation by market solutions for managing the natural monopolies in energy markets.

Suggested Citation

  • Newbery, D. & Tanga McDaniel, 2002. "Auctions and trading in energy markets -- an economic analysis," Cambridge Working Papers in Economics 0233, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:0233
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    File URL: http://www.econ.cam.ac.uk/electricity/publications/wp/ep15.pdf
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    References listed on IDEAS

    as
    1. Rassenti, Stephen J & Smith, Vernon L & Wilson, Bart J, 2003. "Discriminatory Price Auctions in Electricity Markets: Low Volatility at the Expense of High Price Levels," Journal of Regulatory Economics, Springer, vol. 23(2), pages 109-123, March.
    2. Philippe Jehiel & Benny Moldovanu, 1999. "Resale Markets and the Assignment of Property Rights," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(4), pages 971-991.
    3. David M. Newbery, 1998. "Competition, Contracts, and Entry in the Electricity Spot Market," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 726-749, Winter.
    4. Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-286, July.
    5. Tanga McDaniel & Karsten Neuhoff, 2002. "Auctions to gas transmission access: The British experience," Working Papers EP06, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    6. Abbink, Klaus & Brandts, Jordi & McDaniel, Tanga, 2003. "Asymmetric Demand Information in Uniform and Discriminatory Call Auctions: An Experimental Analysis Motivated by Electricity Markets," Journal of Regulatory Economics, Springer, vol. 23(2), pages 125-144, March.
    7. McDaniel, T., 2003. "Auctioning access to networks: evidence and expectations," Utilities Policy, Elsevier, vol. 11(1), pages 33-38, March.
    8. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-86, July.
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    Citations

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    Cited by:

    1. Benjamin F. Hobbs & Fieke A.M. Rijkers & Maroeska G. Boots, 2005. "The More Cooperation, The More Competition? A Cournot Analysis of the Benefits of Electric Market Coupling," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 69-98.
    2. Green, Richard, 2006. "Market power mitigation in the UK power market," Utilities Policy, Elsevier, vol. 14(2), pages 76-89, June.
    3. Hadush, Samson Yemane & Meeus, Leonardo, 2018. "DSO-TSO cooperation issues and solutions for distribution grid congestion management," Energy Policy, Elsevier, vol. 120(C), pages 610-621.
    4. Gert Brunekreeft & David Newbery, 2006. "Should merchant transmission investment be subject to a must-offer provision?," Journal of Regulatory Economics, Springer, vol. 30(3), pages 233-260, November.
    5. Kristiansen, Tarjei, 2007. "An assessment of the Danish-German cross-border auctions," Energy Policy, Elsevier, vol. 35(6), pages 3369-3382, June.
    6. Meeus, Leonardo, 2011. "Why (and how) to regulate power exchanges in the EU market integration context?," Energy Policy, Elsevier, vol. 39(3), pages 1470-1475, March.
    7. Pellini, Elisabetta, 2012. "Measuring the impact of market coupling on the Italian electricity market," Energy Policy, Elsevier, vol. 48(C), pages 322-333.
    8. Tanga McDaniel & Andreas Nicklisch, 2004. "Prices as Indicators of Scarcity: An Experimental Study of a Multistage Auction," Working Papers 04-18, Department of Economics, Appalachian State University.
    9. Sirin, Selahattin Murat & Erten, Ibrahim, 2022. "Price spikes, temporary price caps, and welfare effects of regulatory interventions on wholesale electricity markets," Energy Policy, Elsevier, vol. 163(C).
    10. Green, Richard, 2003. "Failing electricity markets: should we shoot the pools?," Utilities Policy, Elsevier, vol. 11(3), pages 155-167, September.
    11. Jonas Höckner & Simon Voswinkel & Christoph Weber, "undated". "Market distortions in flexibility markets caused by renewable subsidies – The case for side payments," EWL Working Papers 1905, University of Duisburg-Essen, Chair for Management Science and Energy Economics.
    12. Liu, Nairong & An, Haizhong & Hao, Xiaoqing & Feng, Sida, 2017. "The stability of the international heat pump trade pattern based on complex networks analysis," Applied Energy, Elsevier, vol. 196(C), pages 100-117.
    13. John J. García & Luis Camilo Fernández, 2005. "Reformas e integración vertical del sector eléctrico en Reino Unido," Documentos de Trabajo de Valor Público 10643, Universidad EAFIT.
    14. Brunekreeft, Gert & Neuhoff, Karsten & Newbery, David, 2005. "Electricity transmission: An overview of the current debate," Utilities Policy, Elsevier, vol. 13(2), pages 73-93, June.
    15. Meeus, Leonardo, 2011. "Implicit auctioning on the Kontek Cable: Third time lucky?," Energy Economics, Elsevier, vol. 33(3), pages 413-418, May.
    16. Creti, Anna & Fumagalli, Eileen & Fumagalli, Elena, 2010. "Integration of electricity markets in Europe: Relevant issues for Italy," Energy Policy, Elsevier, vol. 38(11), pages 6966-6976, November.
    17. Vandezande, Leen & Meeus, Leonardo & Belmans, Ronnie & Saguan, Marcelo & Glachant, Jean-Michel, 2010. "Well-functioning balancing markets: A prerequisite for wind power integration," Energy Policy, Elsevier, vol. 38(7), pages 3146-3154, July.
    18. Peña, Juan Ignacio & Rodriguez, Rosa, 2018. "Default supply auctions in electricity markets: Challenges and proposals," Energy Policy, Elsevier, vol. 122(C), pages 142-151.
    19. Gore, Olga & Vanadzina, Evgenia & Viljainen, Satu, 2016. "Linking the energy-only market and the energy-plus-capacity market," Utilities Policy, Elsevier, vol. 38(C), pages 52-61.

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    More about this item

    Keywords

    auctions; electricity; gas; interconnectors; networks;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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