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An economic assessment of congestion management methods for electricity transmission networks

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  • R.A. Hakvoort
  • L.J. De Vries

Abstract

This paper provides an economic analysis of five different congestion management methods which can be used to handle congestion in electricity transmission networks: explicit auctioning, implicit auctioning, market splitting, redispatching and counter trading. These methods all have the objective to provide fair and non-discriminatory access to scarce transmission capacity in an economically efficient manner. This paper evaluates the theoretical economic efficiency of each of these methods. For this purpose an economic model is made of each method. In addition, some practical aspects of these congestion management methods are reviewed. The main conclusion is that all of the reviewed congestion management methods have, in theory, the potential of being economically efficient in the short term. That is, if they work well, they will all lead to the most efficient dispatch of generation given the existing transmission constraints. Their differences lie in the distribution of costs, their implementation costs, their practical feasibility, their susceptibility to strategic behaviour and their long-term incentives to generators and network operators. Finally, it is explained why congestion pricing methods (explicit auctioning, implicit auctioning and market splitting) in most cases are preferable as a solution for structural congestion over the corrective methods (redispatching and counter trading). They generate better economic incentives for users of the congested links which probably make them more efficient in the long term.

Suggested Citation

  • R.A. Hakvoort & L.J. De Vries, 2002. "An economic assessment of congestion management methods for electricity transmission networks," Competition and Regulation in Network Industries, Intersentia, vol. 3(4), pages 425-467, September.
  • Handle: RePEc:sen:journl:v:3:i:4:y:2002:p:425-467
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    Cited by:

    1. Adrien De Hauteclocque & Vincent Rious, 2008. "Regulatory Uncertainty and Inefficiency for the Development of Merchant Lines in Europe," Post-Print hal-00338296, HAL.
    2. van Blijswijk, Martti J. & de Vries, Laurens J., 2012. "Evaluating congestion management in the Dutch electricity transmission grid," Energy Policy, Elsevier, vol. 51(C), pages 916-926.
    3. Friedrich Kunz, 2013. "Improving Congestion Management: How to Facilitate the Integration of Renewable Generation in Germany," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    4. Kunz, Friedrich & Zerrahn, Alexander, 2015. "Benefits of coordinating congestion management in electricity transmission networks: Theory and application to Germany," Utilities Policy, Elsevier, vol. 37(C), pages 34-45.
    5. Adrien de Hauteclocque & Vincent Rious, 2009. "Reconsidering the Regulation of Merchant Transmission Investment in the Light of the Third Energy Package: The Role of Dominant Generators," RSCAS Working Papers 2009/59, European University Institute.

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