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Market-Based Redispatch May Result in Inefficient Dispatch

Author

Listed:
  • Veronika Grimm
  • Alexander Martin
  • Christian Sölch
  • Martin Weibelzahl
  • Gregor Zöttl

Abstract

In this paper we analyze a uniform price day-ahead electricity spot market that is followed by redispatch in the case of network congestion. We assume that the transmission system operator is incentivized to minimize redispatch cost and compare cost-based redispatch (CBR) to market-based redispatch (MBR) mechanisms. For networks with at least three nodes we show that in contrast to CBR, in the case of MBR incentives to minimize redispatch cost are in general not efficient in the context of our short-run analysis. This obtains both for pay-as-bid as well as locational marginal prices used for MBR compensation. As we demonstrate, moreover, in case of MBR the possibility of the transmission system operator to inefficiently reduce redispatch cost at the expense of decreased overall welfare can be driven both by the electricity supply side and the electricity demand side.Our results highlight a novel and important aspect regarding the design and the desirability of congestion management regimes in liberalized electricity markets.

Suggested Citation

  • Veronika Grimm & Alexander Martin & Christian Sölch & Martin Weibelzahl & Gregor Zöttl, 2022. "Market-Based Redispatch May Result in Inefficient Dispatch," The Energy Journal, , vol. 43(5), pages 205-230, September.
    • Handle: RePEc:sae:enejou:v:43:y:2022:i:5:p:205-230
    DOI: 10.5547/01956574.43.5.csol
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    References listed on IDEAS

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    2. Grimm, Veronika & Martin, Alexander & Schmidt, Martin & Weibelzahl, Martin & Zöttl, Gregor, 2016. "Transmission and generation investment in electricity markets: The effects of market splitting and network fee regimes," European Journal of Operational Research, Elsevier, vol. 254(2), pages 493-509.
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    Cited by:

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    3. Grimm, Veronika & Sölch, Christian & Zöttl, Gregor, 2022. "Emissions reduction in a second-best world: On the long-term effects of overlapping regulations," Energy Economics, Elsevier, vol. 109(C).

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