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Generalized Nash Equilibrium and Market Coupling in the European Power System

Author

Listed:
  • Smeers, Y.
  • Oggioni, G.
  • Allevi, E.
  • Schaible, S.

Abstract

"Market Coupling'' is currently seen as the most advanced market design in the restructuring of the European electricity market. Market coupling, by construction, introduces what is generally referred to as an incomplete market: it leaves several constraints out of the market and hence avoids pricing them. This may or may not have important consequences in practice depending on the case on hand. Quasi-Variational Inequality problems and the associated Generalized Nash Equilibrium can be used for representing incomplete markets. Recent papers propose methods for finding a set of solutions of QuasiVariational Inequality problems. We apply one of these methods to a subproblem of market coupling namely the coordination of counter-trading. This problem is an illustration of a more general question encountered for instance in hierarchical planning in production management. We first discuss the economic interpretation of the Quasi-Variational Inequality problem. We then apply the algorithmic approach to a set of stylized case studies in order to illustrate the impact of different organizations of counter-trading. The paper emphazises the structuring of the problem. A companion paper considers the full problem of market coupling and counter-trading and presents a more extensive numerical analysis.

Suggested Citation

  • Smeers, Y. & Oggioni, G. & Allevi, E. & Schaible, S., 2010. "Generalized Nash Equilibrium and Market Coupling in the European Power System," Cambridge Working Papers in Economics 1034, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:1034
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    Cited by:

    1. Figueiredo, Nuno Carvalho & Silva, PatrĂ­cia Pereira da & Cerqueira, Pedro A., 2015. "Evaluating the market splitting determinants: evidence from the Iberian spot electricity prices," Energy Policy, Elsevier, vol. 85(C), pages 218-234.

    More about this item

    Keywords

    Generalized Nash Equilibrium; Quasi-Variational Inequalities; Market Coupling; Counter-Trading; European Electricity Market;

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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