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

Jan Richter () and Johannes Viehmann ()
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Johannes Viehmann: Energiewirtschaftliches Institut an der Universitaet zu Koeln

No 2013-5, EWI Working Papers from Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)

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.

Keywords: Cournot Oligopoly; incomplete information; capacity constraints; electricity markets; interconnector; cross-border trade (search for similar items in EconPapers)
JEL-codes: C72 D43 L13 L94 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2013-02-18
New Economics Papers: this item is included in nep-cta, nep-ene, nep-gth and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The value of information in explicit cross-border capacity auction regimes in electricity markets (2014)
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