Analysis of a capacity-based redispatch mechanism

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

No 24-025, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

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.

Keywords: Energy market; Congestion management; Capacity-based redispatch; Game theory; Auctions (search for similar items in EconPapers)
JEL-codes: D43 D44 L13 Q41 Q48 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-des, nep-ene and nep-gth
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