Congestion management games in electricity markets

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

No 22-060, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This paper proposes a game-theoretic model to analyze the strategic behavior of inc-dec gaming in market-based congestion management (redispatch). We extend existing models by considering incomplete information about competitors' costs and a finite set of providers. We find that these extensions do not dissolve inc-dec gaming, which already occurs in our setup of two regions. We also benchmark market-based redispatch against grid investment, cost-based redispatch, and the Vickrey-Clarke-Groves mechanism. The comparison highlights a significant inefficiency of market-based redispatch and inflated redispatch payments. Finally, we study seven variations of our basic model to assess whether different market fundamentals or market design changes mitigate inc-dec gaming. None of these variations eliminate inc-dec gaming entirely.

Keywords: Energy market; Game theory; Auctions/bidding; Congestion management; Inc-dec gaming (search for similar items in EconPapers)
JEL-codes: D43 D44 L13 Q41 Q48 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-ene, nep-gth and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:22060

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