Congestion management games in electricity markets

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

No 25-044, 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 inc-dec gaming is also a rational behavior in markets with high competition and with uncertainty about network constraints. Such behavior already occurs in our setup of two regions. Comparing market-based redispatch with three theoretical benchmarks highlights a lower efficiency level 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 incdec 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: 2025
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