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Mediating Market Power in Electricity Networks

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Author Info

  • Richard Gilbert

    (University of California, Berkeley)

  • Karsten Neuhoff

    (University of Cambridge)

  • David Newbery

    (University of Cambridge)

Abstract

We ask under what conditions transmission contracts increase or mitigate market power. We show that the allocation process of transmission rights is crucial. In an efficiently 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 minimizing market power considerations when designing transmission contracts.

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Bibliographic Info

Paper provided by EconWPA in its series Industrial Organization with number 0303008.

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Length: 36 pages
Date of creation: 19 Mar 2003
Date of revision:
Handle: RePEc:wpa:wuwpio:0303008

Note: 36 pages, Acrobat .pdf
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Web page: http://128.118.178.162

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Cited by:
  1. Hu, X. & Ralph, D. & Ralph, E.K. & Bardsley, P. & Ferris, M.C., 2004. "Electricity Generation with Looped Transmission Networks: Bidding to an ISO," Cambridge Working Papers in Economics 0470, Faculty of Economics, University of Cambridge.
  2. Tarjei Kristiansen & Juan Rosellón, 2006. "A Merchant Mechanism for Electricity Transmission Expansion," Journal of Regulatory Economics, Springer, vol. 29(2), pages 167-193, 03.
  3. Kristiansen, Tarjei, 2007. "Cross-border transmission capacity allocation mechanisms in South East Europe," Energy Policy, Elsevier, vol. 35(9), pages 4611-4622, September.

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