Contracting for the Second Best in Dysfunctional Electricity Markets

40 Pages Posted: 20 Apr 2016

See all articles by Arina Nikandrova

Arina Nikandrova

City, University of London

Jevgenijs Steinbuks

World Bank - Development Research Group (DECRG)

Date Written: June 1, 2014

Abstract

Power pools constitute a set of sometimes complex institutional arrangements for efficiency-enhancing coordination among power systems. Where such institutional arrangements do not exist, there still can be scope for voluntary electricity-sharing agreements among power systems. This paper uses a particular type of efficient risk-sharing model with limited commitment to demonstrate that second-best coordination improvements can be achieved with low to moderate risks of participants leaving the agreement. In the absence of an impartial market operator who can observe fluctuations in connected power systems, establishing quasi-markets for trading excess electricity through the kind of mechanism described here helps achieve sustainable cooperation in mutually beneficial electricity sharing.

Keywords: Energy Production and Transportation, Energy Technology & Transmission, Infrastructure Economics, Political Economy, Power & Energy Conversion

Suggested Citation

Nikandrova, Arina and Steinbuks, Jevgenijs, Contracting for the Second Best in Dysfunctional Electricity Markets (June 1, 2014). World Bank Policy Research Working Paper No. 6955, Available at SSRN: https://ssrn.com/abstract=2461009

Arina Nikandrova (Contact Author)

City, University of London ( email )

London
United Kingdom
EC1V 0HB (Fax)

Jevgenijs Steinbuks

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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