Definition of a Balancing Point for Electricity Transmission Contracts

Luis Olmos and Karsten Neuhoff ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: Electricity transmission contracts allocate scarce resources, allow hedging against locational price differences and provide information to guide investment. Liquidity is increased if all transmission contracts are defined relative to one balancing point, then a set of two contracts can replicate any point to point contract. We propose an algorithm and apply it to the European electricity network to identify a well connected balancing point that exhibits minimal relative cross-price responses and hence reduces market power exercised by generation companies. Market level data which is difficult to obtain or model such as price levels in different regions or that is dependent on the time scale of interaction, as demand elasticity, is not required. The only critical input quantities are assumptions on future transmission constraint patterns.

Keywords: Transmission contract design; Congestion management; Market Power; European electricity network (search for similar items in EconPapers)
JEL-codes: D43 L50 L94 (search for similar items in EconPapers)
Pages: 18
Date: 2004-04
New Economics Papers: this item is included in nep-com and nep-ene
Note: CMI40 IO
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Working Paper: Definition of a Balancing Point for Electricity Transmission Contracts (2004)
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