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The Value of Information in Explicit Cross-Border Capacity Auction Regimes in Electricity Markets

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  • Richter, Jan

    () (Energiewirtschaftliches Institut an der Universitaet zu Koeln)

  • Viehmann, Johannes

    () (Energiewirtschaftliches Institut an der Universitaet zu Koeln)

Abstract

We study two electricity markets connected by a fixed amount of crossborder capacity. The total amount of capacity is known to all electricity traders and allocated via an auction. The capacity allocated to each bidder in the auction remains private information. We assume that traders are faced with a demand function reflecting the relationship between electricity transmitted between the markets and the spot price difference. Therefore, traders act like Bayesian-Cournot oligopolists in exercising their transmission rights when presented with incomplete information about the competitors’ capacities. Our analysis breaks down the welfare effect into three different components: Cournot behavior, capacity constraints, and incomplete information. We find that social welfare increases with the level of information with which traders are endowed.

Suggested Citation

  • Richter, Jan & Viehmann, Johannes, 2013. "The Value of Information in Explicit Cross-Border Capacity Auction Regimes in Electricity Markets," EWI Working Papers 2013-5, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
  • Handle: RePEc:ris:ewikln:2013_005
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    References listed on IDEAS

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    1. Jullien, Céline & Pignon, Virginie & Robin, Stéphane & Staropoli, Carine, 2012. "Coordinating cross-border congestion management through auctions: An experimental approach to European solutions," Energy Economics, Elsevier, vol. 34(1), pages 1-13.
    2. Viehmann, Johannes, 2011. "Risk premiums in the German day-ahead Electricity Market," Energy Policy, Elsevier, vol. 39(1), pages 386-394, January.
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    4. Richter, Jan, 2013. "Incomplete Information in Cournot Oligopoly: The Case of Unknown Production Capacities," EWI Working Papers 2013-1, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
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    Cited by:

    1. Kiesel, Rüdiger & Kusterman, Michael, 2016. "Structural models for coupled electricity markets," Journal of Commodity Markets, Elsevier, vol. 3(1), pages 16-38.

    More about this item

    Keywords

    Cournot Oligopoly; incomplete information; capacity constraints; electricity markets; interconnector; cross-border trade;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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