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

Céline Jullien, Virginie Pignon, Stéphane Robin () and Carine Staropoli ()

Energy Economics, 2012, vol. 34, issue 1, 1-13

Abstract: Competition 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 yet implemented. 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 the 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.

Keywords: Auctions; Congestion management; Electricity markets; Experimental economics (search for similar items in EconPapers)
JEL-codes: C92 D43 D44 (search for similar items in EconPapers)
Date: 2012
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Working Paper: Coordinating cross-border congestion management through auctions: An experimental approach to European solutions (2012) Downloads
Working Paper: Coordinating cross-border congestion management through auctions: An experimental approach to European solutions (2011) Downloads
Working Paper: Coordinating cross-border congestion management through auctions: an experimental approach of European solutions (2006)
Working Paper: Coordinating cross-border congestion management through auctions: an experimental approach of European solutions (2006)
Working Paper: Coordinating cross-border congestion management through auctions: an experimental approach of European solutions (2006)
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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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