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Netting of capacity in interconnector auctions

Author

Listed:
  • Felix Hoeffler

    (Max Planck Institute for Research on Collective Goods, Bonn)

  • Tobias Wittmann

    (Technische Universität, Berlin)

Abstract

Scarce interconnector capacities are a severe obstacle to transregional competition and a unified market for electricity in the European Union. However, physically the interconnectors are rarely used up to capacity. This is due to the fact that the current allocation schemes make only limited use of the fact that currents in opposing directions cancel out. We propose a "netting" auction mechanism which makes use of this and in which even small transmission capacities can generate large competitive pressure in adjacent markets. Netting increases the usage of capacity and reduces the auctioneer's incentive to withhold capacity from the auction.

Suggested Citation

  • Felix Hoeffler & Tobias Wittmann, 2006. "Netting of capacity in interconnector auctions," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2006_5, Max Planck Institute for Research on Collective Goods.
    • Handle: RePEc:mpg:wpaper:2006_05
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    File URL: http://www.coll.mpg.de/pdf_dat/2006_05online.pdf
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    Citations

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    Cited by:

    1. Hakenes, Hendrik & Schnabel, Isabel, 2006. "The Threat of Capital Drain: A Rationale for Public Banks?," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 107, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    2. Derek Bunn & Georg Zachmann, 2010. "Inefficient arbitrage in inter-regional electricity transmission," Journal of Regulatory Economics, Springer, vol. 37(3), pages 243-265, June.
    3. Christos Roumkos & Pandelis Biskas & Ilias Marneris, 2020. "Modeling Framework Simulating the TERRE Activation Optimization Function," Energies, MDPI, vol. 13(11), pages 1-30, June.

    More about this item

    Keywords

    Divisible good auctions; interconnector; electricity marktes; competition policy;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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