Flow-Based Coordinated Explicit Auctions: Auction Income Distribution
Electricity Markets Working Paper No. WP-EM-19
12 Pages Posted: 6 Jun 2008
Date Written: 2007
The development of adequate market- based congestion management methods in continental Europe lags similar developments elsewhere, e.g. in the US. To achieve greater integration of the single European market, the EU countries were grouped into seven regions, one of which is Central East Europe (CEE). Based on publicly available data, a flow-based coordinated auction for this region is modeled and simulated to demonstrate different auction income distribution schemes. The model is a linear optimization problem which is solved in GAMS. It is based on a zonal model of CEE including 8 zones and 13 tie-lines.
We show that the auction income distribution schemes as defined by the European Transmission System Operators (ETSO) in 2001 do not provide proper incentives. Additionally, the most efficient auction income distribution scheme differs with the chosen market structure. Therefore, an allocation procedure that is based upon the estimated flows according to the bids accepted appears to be an appropriate trade-off for all of the cases included in our analyses.
Keywords: Congestion management, power system economics, power transmission economics
JEL Classification: L94
Suggested Citation: Suggested Citation
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By Hannes Weigt