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Analysis of a capacity-based redispatch mechanism

Author

Listed:
  • Ehrhart, Karl-Martin
  • Eicke, Anselm
  • Hirth, Lion
  • Ocker, Fabian
  • Ott, Marion
  • Schlecht, Ingmar
  • Wang, Runxi

Abstract

This paper discusses a capacity-based redispatch mechanism in which awarded market participants are compensated for their availability for redispatch, rather than activation. The rationale is to develop a market design that prevents so-called 'inc-dec gaming' when including flexible consumers with a market-based approach. We conduct a game-theoretical analysis of a capacity-based redispatch mechanism. Our analysis reveals that despite its intention, the capacity-based redispatch is prone to undesirable behavior of market participants. The reason is that the availability payment incentivizes participants to change their energy consumption (generation) behavior. However, this also applies to undesired participants who increase the redispatch requirement through participation. Under certain assumptions, the additional redispatch potential equals the additional redispatch demand it creates. Consequently, the mechanism does not resolve network constraints, while causing costs for the compensation payments. Furthermore, we study three alternative implementation options, none of which resolves the underlying problem. It follows from our analysis that a mechanism can only be promising if it is capable to distinguish between the potential participants to exclude the undesirable ones.

Suggested Citation

  • Ehrhart, Karl-Martin & Eicke, Anselm & Hirth, Lion & Ocker, Fabian & Ott, Marion & Schlecht, Ingmar & Wang, Runxi, 2024. "Analysis of a capacity-based redispatch mechanism," ZEW Discussion Papers 24-025, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:298003
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    References listed on IDEAS

    as
    1. Meredith Fowlie & Catherine Wolfram & Patrick Baylis & C Anna Spurlock & Annika Todd-Blick & Peter Cappers, 2021. "Default Effects And Follow-On Behaviour: Evidence From An Electricity Pricing Program [The Impact of Presumed Consent Legislation on Cadaveric Oorgan Donation: A Cross-country Study”]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(6), pages 2886-2934.
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    More about this item

    Keywords

    Energy market; Congestion management; Capacity-based redispatch; Game theory; Auctions;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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