Coordinating cross-border congestion management through auctions: An experimental approach to European solutions

Abstract

International audienceCompetition among producers within an integrated electricity system is impeded by any limited transmission capacity there may be at its borders. Two alternative market mechanisms have recently been designed to organize the allocation of scarce transmission capacity at cross-border level: (i) the "implicit auction", already used in some countries, and (ii) the "coordinated explicit auction", proposed by the European Transmission System Operators (ETSO) but not implemented yet. The main advantage of the explicit auction is that it allows each country to keep its own power exchange running. In the European institutional context, this is seen as a factor of success of a market reform, although the explicit auction (not coordinated) is known to be less efficient than the implicit mechanism. The addition of a coordination dimension in the explicit auction is intended to solve problems of international flows. We use an experimental methodology to identify and compare in a laboratory setting the efficiency properties of these two market mechanisms, given a market structure similar to the existing one in continental Europe, i.e. a competitive oligopoly. Our main result highlights the inefficiency of the coordinated explicit auction compared to the performance of the implicit auction, measured in terms of both energy prices and transmission capacity allocation. We suggest that the poor performance of the coordinated explicit auction in the laboratory is due to the level of individual expectations about both energy and transmission prices that the mechanism demands. One solution to resolve this problem when the mechanism is implemented in the field would be to design an additional and secondary market for "used" transmission capacity

Risk and abnormal returns in markets for congestion revenue rights

“…Deng, Oren & Meliopoulos (2010) argued that those differences could partially be explained by the number of bids in a sale implying that the limits on the number of bids could yield even greater inefficiencies in market outcomes. Jullien et al (2012) examined different types of transmission capacity auctions, but none performed well enough to relieve the network economy of inefficiency. Theoretically, an auction-based market can become efficient.…”

Quantitative analysis of energy markets

“…The latter system will allow countries to keep their power exchanges running, but if it is found to be less efficient than of the former system when it is not coordinated. This conclusion was reached by Jullien et al (2012) who studied the European competitive oligopoly by analysing energy prices and transmission capacity allocations. They also propose designing a secondary market for used transmission capacity to solve the problem.…”

Energy storage in Spain: Forecasting electricity excess and assessment of power-to-gas potential up to 2050

“…The utilization of such technology would allow to valorize the electricity surplus at the same time that frequent curtailments in wind farms would be avoided. Besides, the electrical transmission congestion could be suitably managed by this large-scale electricity storage, what would soften the stress over system operators [48]. If Power to Gas plants are located near the renewable power plants, ohmic losses and transmission congestion are avoided, since energy could be easily transmitted through the natural gas network as methane.…”