IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Auction Design for a Strategic Reserve Market for Generation Adequacy: On the Incentives Under Different Auction Scoring Rules

Listed author(s):
  • Gert Brunekreeft
  • Roland Meyer
  • Margarethe Rammerstorfer
Registered author(s):

    How should we select winning bids of generation units for strategic reserves that consist of capacity bids and energy bids? In this paper, we analyze two selecting mechanisms (scoring rules): “simultaneous” and “sequential”. In case of a simultaneous scoring rule, capacity and energy bids are weighted and combined to a single score based on which the cheapest bids are selected. Under sequential scoring rule the selection depends solely on capacity bids. In both cases the energy bids are used to form the merit order for dispatch. We find that the main difference between the simultaneous and sequential scoring mechanism is that under sequential scoring the bids are biased towards lower capacity bids and higher energy bids, since it is only the capacity part that “opens the door” to the reserve market. We find that a simultaneous scoring is favorable from a welfare perspective, since it avoids the strategic incentives for excessive mark-ups on energy costs and limits the incentives for collusive behavior. This reduces the risk of inefficient selection and dispatch of reserve units compared to a sequential scoring mechanism.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://b-e-r.user.jacobs-university.de/bewp/bewp14.pdf
    Download Restriction: no

    Paper provided by Bremen Energy Research in its series Bremen Energy Working Papers with number 0014.

    as
    in new window

    Length: 22 pages
    Date of creation: Sep 2013
    Handle: RePEc:bei:00bewp:0014
    Contact details of provider: Web page: http://b-e-r.user.jacobs-university.de/

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as
    in new window


    1. Bushnell, James B & Oren, Shmuel S, 1994. "Bidder Cost Revelation in Electric Power Auctions," Journal of Regulatory Economics, Springer, vol. 6(1), pages 5-26, February.
    2. Ingo Vogelsang & Jorg Finsinger, 1979. "A Regulatory Adjustment Process for Optimal Pricing by Multiproduct Monopoly Firms," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 157-171, Spring.
    3. 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 109-123, March.
    4. Ausubel, Lawerence M. & Cramton, Peter, 1998. "The optimality of being efficient : designing auctions," Policy Research Working Paper Series 1985, The World Bank.
    5. 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.
    6. Federico, Giulio & Rahman, David, 2003. "Bidding in an Electricity Pay-as-Bid Auction," Journal of Regulatory Economics, Springer, vol. 24(2), pages 175-211, September.
    7. Chao, Hung-Po & Wilson, Robert, 2002. "Multi-dimensional Procurement Auctions for Power Reserves: Robust Incentive-Compatible Scoring and Settlement Rules," Journal of Regulatory Economics, Springer, vol. 22(2), pages 161-183, September.
    8. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, March.
    9. Peter Cramton & Steven Stoft, 2006. "The Convergence of Market Designs for Adequate Generating Capacity," Papers of Peter Cramton 06mdfra, University of Maryland, Department of Economics - Peter Cramton, revised 2006.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:bei:00bewp:0014. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roland Meyer)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.