Coordinating cross-border congestion management through auctions : An experimental approach to European solutions
AbstractCompetition among producers within an integrated electricity system is impeded by any limited transmission capacity there may be at its borders. Two alternative market mechanisms have recently been designed to organize the allocation of scarce transmission capacity at cross-border level : (i) the “implicit auction”, already used in some countries, and (ii) the “coordinated explicit auction”, proposed by the European Transmission System Operators (ETSO) but not implemented yet. The main advantage of the explicit auction is that it allows each country to keep its own power exchange running. In the European institutional context, this is seen as a factor of success of a market reform, although the explicit auction (not coordinated) is known to be less efficient than the implicit mechanism. The addition of a coordination dimension in the explicit auction is intended to solve problems of international flows. We use an experimental methodology to identify and compare in a laboratory setting the efficiency properties of these two market mechanisms, given a market structure similar to the existing one in continental Europe, i.e. a competitive oligopoly. Our main result highlights the inefficiency of the coordinated explicit auction compared to the performance of the implicit auction, measured in terms of both energy prices and transmission capacity allocation. We suggest that the poor performance of the coordinated explicit auction in the laboratory is due to the level of individual expectations about both energy and transmission prices that the mechanism demands. One solution to resolve this problem when the mechanism is implemented in the field would be to design an additional and secondary market for “used” transmission capacity.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure in its series Working Papers with number 1121.
Date of creation: 2011
Date of revision:
Contact details of provider:
Postal: 93, chemin des Mouilles - B.P.167 69131 - Ecully cedex
Phone: 33(0)472 29 30 89
Fax: 33(0)47229 30 90
Web page: http://www.gate.cnrs.fr/
More information through EDIRC
auctions; congestion management; electricity markets; experimental economics;
Other versions of this item:
- Jullien, Céline & Pignon, Virginie & Robin, Stéphane & Staropoli, Carine, 2012. "Coordinating cross-border congestion management through auctions: An experimental approach to European solutions," Energy Economics, Elsevier, vol. 34(1), pages 1-13.
- Céline Jullien & Virginie Pignon & Stéphane Robin & Carine Staropoli, 2012. "Coordinating cross-border congestion management through auctions: An experimental approach to European solutions," Grenoble Ecole de Management (Post-Print) halshs-00617026, HAL.
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D49 - Microeconomics - - Market Structure and Pricing - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-01 (All new papers)
- NEP-ENE-2011-11-01 (Energy Economics)
- NEP-EUR-2011-11-01 (Microeconomic European Issues)
- NEP-EXP-2011-11-01 (Experimental Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Noussair, Charles N & Plott, Charles R & Riezman, Raymond G, 1995.
"An Experimental Investigation of the Patterns of International Trade,"
American Economic Review,
American Economic Association, vol. 85(3), pages 462-91, June.
- Noussair, C.N. & Plott, C. & Riezman, R., 1995. "An experimental investigation of the patterns of international trade," Open Access publications from Tilburg University urn:nbn:nl:ui:12-387775, Tilburg University.
- Noussair, Charles & Plott, Charles & Riezman, Raymond., . "An Experimental Investigation of the Patterns of International Trade," Working Papers 799, California Institute of Technology, Division of the Humanities and Social Sciences.
- Smith, Vernon L., 2002.
"Constructivist and Ecological Rationality in Economics,"
Nobel Prize in Economics documents
2002-7, Nobel Prize Committee.
- Vernon L. Smith, 2003. "Constructivist and Ecological Rationality in Economics," American Economic Review, American Economic Association, vol. 93(3), pages 465-508, June.
- repec:cto:journl:v:21:y:2002:i:3:p:515-544 is not listed on IDEAS
- Perez-Arriaga, Ignacio J. & Olmos, Luis, 2005. "A plausible congestion management scheme for the internal electricity market of the European Union," Utilities Policy, Elsevier, vol. 13(2), pages 117-134, June.
- Roger E. Bohn & Michael C. Caramanis & Fred C. Schweppe, 1984. "Optimal Pricing in Electrical Networks over Space and Time," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 360-376, Autumn.
- Ehrenmann, Andreas & Smeers, Yves, 2005. "Inefficiencies in European congestion management proposals," Utilities Policy, Elsevier, vol. 13(2), pages 135-152, June.
- Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-42, September.
- Smith, Vernon L, 1976. "Experimental Economics: Induced Value Theory," American Economic Review, American Economic Association, vol. 66(2), pages 274-79, May.
- Mulder, Machiel & Schoonbeek, Lambert, 2013.
"Decomposing changes in competition in the Dutch electricity market through the residual supply index,"
Elsevier, vol. 39(C), pages 100-107.
- Mulder, Machiel & Schoonbeek, Lambert, 2013. "Decomposing changes in competition in the Dutch electricity market through the Residual Supply Index," Research Report 13003-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
- Richter, Jan & Viehmann, Johannes, 2013. "The Value of Information in Explicit Cross-Border Capacity Auction Regimes in Electricity Markets," EWI Working Papers 2013-5, Energiewirtschaftliches Institut an der Universitaet zu Koeln.
- Hagspiel, Simeon & Jägemann, Cosima & Lindenberger, Dietmar & Brown, Tom & Cherevatskiy, Stanislav & Tröster, Eckehard, 2013. "Cost-Optimal Power System Extension under Flow-Based Market Coupling," EWI Working Papers 2013-9, Energiewirtschaftliches Institut an der Universitaet zu Koeln.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nelly Wirth).
If references are entirely missing, you can add them using this form.