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Short-term allocation of gas networks in the EU and gas-electricity input foreclosure

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  • Miguel Vazquez
  • Michelle Hallack

Abstract

Strategic interaction between gas and electricity sectors is a major issue in the implementation of competitive energy markets. One relevant aspect of the problem is the potential for input foreclosure between gas and power industries. In this paper, we are concerned with situations where input foreclosure opportunities are associated with the choice of market design. In particular, we study input foreclosure in the case that the short-term capacity allocation mechanism of gas networks raises barriers to cross-border trade. In that situation, one may find gas markets that are isolated only in the short term. We explain players' ability to influence the electricity price using their gas decisions in those isolated markets. We also show that this should be a concern of EU capacity allocation mechanisms, which provide spatial flexibility in the short term to promote liquidity, at the cost of creating barriers to cross-border trade. Therefore, input foreclosure opportunities are additional costs to be taken into account when weighing benefits and drawbacks of European gas market designs.

Suggested Citation

  • Miguel Vazquez & Michelle Hallack, 2013. "Short-term allocation of gas networks in the EU and gas-electricity input foreclosure," RSCAS Working Papers 2013/41, European University Institute.
  • Handle: RePEc:rsc:rsceui:2013/41
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Market design; Input foreclosure; Gas-power interaction; Network economics;
    All these keywords.

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