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A theoretical analysis of procurement auctions for tertiary control in Germany

  • Müller, Gernot
  • Rammerstorfer, Margarethe
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    As far as energy policy is concerned, the design of the regulatory framework for energy transmission and distribution is a key issue. Consequently, also the embodiment of balancing power markets drives mainly the effectiveness of political implications for the energy sector. Initially, tertiary control in Germany was solely offered by transmission system operators of the respective power control areas and their associated power plant. The recast of the Energy Industry Act of 2005 led in last consequence to a common procurement auction for the supply of tertiary control, which starts on December 1, 2006. Admittedly, the reform has fallen short of expectations so far, first concerning the intensification of market entry of tertiary control providers as well as the desired decline of the price level. Hence, this article examines the effects of the changeover on observable demand charges. In order to identify attributes of the common procurement auction for tertiary control hampering market entry of providers, giving stimuli to collusion and strategic behavior, reducing intensity of competition and encouraging an upswing of prices, we analyze the design under an auction theoretical approach and deduce empirically whether structural components of the auction design have to be touched up again.

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    File URL: http://www.sciencedirect.com/science/article/B6V2W-4SFHKJH-3/1/5b17136ec8c4bece8a33f825e74002bf
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    Article provided by Elsevier in its journal Energy Policy.

    Volume (Year): 36 (2008)
    Issue (Month): 7 (July)
    Pages: 2620-2627

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    Handle: RePEc:eee:enepol:v:36:y:2008:i:7:p:2620-2627
    Contact details of provider: Web page: http://www.elsevier.com/locate/enpol

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    1. Gautam Goswami & Thomas Noe & Michael Rebello, 1995. "Collusion in uniform-price auctions: experimental evidence and implications for Treasury auctions," Working Paper 95-5, Federal Reserve Bank of Atlanta.
    2. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
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    5. Alfred E. Kahn & Peter Cramton & Robert H. Porter & Richard D. Tabors, 2001. "Uniform Pricing or Pay-as-Bid Pricing: A Dilemma for California and Beyond," Papers of Peter Cramton 01ej, University of Maryland, Department of Economics - Peter Cramton, revised 27 Jan 2001.
    6. Lawrence M. Ausubel & Peter Cramton & Marek Pycia & Marzena Rostek & Marek Weretka, 2014. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1366-1400.
    7. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
    8. Paul Klemperer, 2000. "What Really Matters in Auction Design," Economics Series Working Papers 2000-W26, University of Oxford, Department of Economics.
    9. Borenstein, Severin & Bushnell, James, 1999. "An Empirical Analysis of the Potential for Market Power in California's Electricity Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 47(3), pages 285-323, September.
    10. Woo, Chi-Keung & Lloyd, Debra & Tishler, Asher, 2003. "Electricity market reform failures: UK, Norway, Alberta and California," Energy Policy, Elsevier, vol. 31(11), pages 1103-1115, September.
    11. 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 109-23, March.
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