Competition in Electric Energy Network *

Operations Research, 1999

An oligopoly with spatially dispersed generators and consumers and with multi-period demand is modeled in this paper. The producers are assumed to behave in a Cournot manner with regulated transmission prices. A (generalized) Nash equilibrium is sought. The story of the game is as follows. Each generator takes its rivals' output (generation, supply, and flows) and the prices for transmission services as fixed when it decides upon its output to maximize its profit; the transmission firm takes the quantities of transmission services demanded by the generators as fixed when it determines the transmission prices according to certain regulatory rules. An equilibrium of the model is a set of generation output at which no generator will obtain more profit if it unilaterally modifies its output from this set, and a set of transmission prices satisfying certain regulatory requirements. A variational inequality approach is used for computing the equilibria of the model. Using the same app...

Proposals in the European Union and other regions of the world are being currently made in order to ease electricity trading between different countries. One of the reasons invoked in order to justify the regulatory change is that the increasing of the relevant market size by linking different systems should bring a greater degree of competition. However, these prospects will only be attained if there is enough transmission capacity between the different systems, allowing the constitution of an effective single market. Development of modelling tools able to deal with oligopolistic competition in real systems taking into account network constraints is an active research topic. These tools are needed both from a regulatory (assessment of the required transmission capacity) as well as industrial standpoint. This paper presents some preliminary results obtained with one of these tools, when applied to a ficticious (albeit realistic) system akin to the recently proposed Iberian market co...

2005

This thesis consists of three self-contained papers on the analysis of electricity auctions written over a period of twelve years. The first paper models price competition in a decentralized wholesale market for electricity as a first-price, sealed-bid, multi-unit auction. In both the pure and mixed-strategy equilibria of the model, above marginal cost pricing and inefficient despatch of generating units occur. An alternative regulatory pricing rule is considered and it is shown that offering to supply at marginal cost can be induced as a dominant strategy for all firms. The second paper analyses strategic interaction between long-term contracts and price competition in the British electricity wholesale market, and confirms that forward contracts will tend to put downward pressure on spot market prices. A 'strategic commitment' motive for selling forward contracts is also identified: a generator may commit itself to bidding lower prices into the spot market in order to ensur...

Elgar Encyclopedia of Environmental Law

Energy networks, such as the networks for the transportation of electricity and gas, are natural monopolies, which implies that competition among these networks is not possible. In order to protect network users against monopoly prices and to give the network operators the incentive to operate efficiently, many countries have implemented tariff regulation. After discussing the economic consequences of natural monopolies and the need for regulation, this chapter briefly compares the various types of tariff regulation, discussing the incentive power, the ability to make a profit, and the reward on the costs of capital. The chapter concludes by discussing how tariff regulation may enable network operators to finance the necessary investments to connect new renewable energy production facilities.

1997

Energy Economics, 2021

There is an ongoing transition in the power system towards an increasing amount of flexible resources and generation technologies at the distribution system level. An appealing alternative to facilitate efficient utilization of such decentralized energy resources is to coordinate the power at the neighbourhood level. This paper proposes a game-theoretic framework to analyze a local trading mechanism and its feedback effect on grid tariffs under cost recovery conditions for the distribution system operator. The novelty of the proposed framework is to consider both long-term and short-term aspects to evaluate the socioeconomic value of establishing a local trading mechanism. Under our assumptions, the main finding is that the establishment of local electricity markets can decrease the total costs by facilitating coordination of resources and thus create higher socioeconomic value than the uncoordinated solution. Furthermore, a sensitivity analysis on the tariff levels reveals that there are two equilibrium solutions, one where the grid costs are exactly balanced by tariff income and one where the neighbourhood decides to disconnect from the larger power system. These results indicate that although a local trading mechanism can reduce the need for grid capacity, it may not be cost optimal for neighbourhoods to become completely selfsufficient.

Rand Journal of Economics, 2000

European Journal of Operational Research, 2016

In this paper we propose a three-level computational equilibrium model that allows to analyze the impact of the regulatory environment on transmission line expansion (by the regulator) and investment in generation capacity (by private firms) in liberalized electricity markets. The basic model analyzes investment decisions of the transmission operator (TO) and private firms in expectation of an energy only market and cost-based redispatch. In different specifications we consider the cases of one versus two price zones (market splitting) and analyze different approaches to recover network cost, in particular lump sum, capacity based, and energy based fees. In order to compare the outcomes of our multi-stage market model with the first best benchmark, we also solve the corresponding integrated planer problem. In two simple test networks we illustrate that energy only markets can lead to suboptimal locational decisions for generation capacity and thus, imply excessive network expansion. Market splitting heals those problems only partially. Those results obtain for both, capacity and energy based network tariffs, although investment slightly differs across those regimes.

SSRN Electronic Journal, 2007

This paper studies the welfare implications of using market mechanisms to allocate transmission capacity in recently lib eraliz ed electricity markets. It q uestions whether access to this essential facility should b e traded on a market, or whether the incumb ent should retain ex clusiv e usage rights. W e show that granting ex clusiv e use to the incumb ent might b e optimal, if the capacity of the essential facility is small and the incumb ent can reduce production costs b y taking adv antage of interregional production-cost diff erences. This result counters the intuition that arb itrage will improv e the social surplus when there is no output contraction. The reason is that when competition is imperfect, arb itrage might reduce production effi ciency. W e adv ise policy makers to introduce market mechanisms for the allocation of transmission capacity only if suffi cient inv estment in the network is ensured or if the market power of the incumb ent is b roken in at least one of the markets in which it is activ e.

Computational Mathematics and Modeling, 2019

An energy transmission system is usually a part of every energy market. The problem of optimizing transmission system to maximize the social welfare is the subject of the present paper. For energy markets with tree-type network structures, an approach to optimizing their transmission systems is developed based upon the concept of competitive and complementary network lines. Also, a method for the supply-demand balances transfer to the root node of the network is discussed. Finally, the problem of optimally developing an energy transmission system up to a given planning horizon is discussed.