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Definition of a Balancing Point for Electricity Transmission Contracts

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  • Luis Olmos
  • Karsten Neuhoff

Abstract

Electricity transmission contracts allocate scarce resources, allow hedging against locational price differences and provide information to guide investment. Liquidity is increased if all transmission contracts are defined relative to one balancing point, then a set of two contracts can replicate any point to point contract. We propose an algorithm and apply it to the European electricity network to identify a well connected balancing point that exhibits minimal relative cross-price responses and hence reduces market power exercised by generation companies. Market level data which is difficult to obtain or model such as price levels in different regions or that is dependent on the time scale of interaction, as demand elasticity, is not required. The only critical input quantities are assumptions on future transmission constraint patterns.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Luis Olmos & Karsten Neuhoff, 2004. "Definition of a Balancing Point for Electricity Transmission Contracts," Working Papers EP40, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:ep40
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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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