Market-Based Redispatch May Result in Inefficient Dispatch

37 Pages Posted: 13 Feb 2018 Last revised: 23 Nov 2021

See all articles by Veronika Grimm

Veronika Grimm

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg - School of Business & Economics

Alexander Martin

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

Christian Sölch

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

Martin Weibelzahl

University of Bayreuth

Gregor Zöttl

Friedrich Alexander Universität Erlangen Nürnberg

Date Written: December 8, 2020

Abstract

In this paper we analyze a uniform price day-ahead electricity spot market that is followed by redispatch in the case of network congestion. We assume that the transmission system operator is incentivized to minimize redispatch cost and compare cost-based redispatch (CBR) to market-based redispatch (MBR) mechanisms. For networks with at least three nodes we show that in contrast to CBR, in the case of MBR incentives to minimize redispatch cost are in general not efficient in the context of our short-run analysis. This obtains both for pay-as-bid as well as locational marginal prices used for MBR compensation. As we demonstrate, moreover, in case of MBR the possibility of the transmission system operator to inefficiently reduce redispatch cost at the expense of decreased overall welfare can be driven both by the electricity supply side and the electricity demand side. Our results highlight a novel and important aspect regarding the design and the desirability of congestion management regimes in liberalized electricity markets.

Keywords: Electricity Markets, Redispatch, Congestion Management, Computational Equilibrium Models

JEL Classification: D41, D47, D58, D78, L51, L94, Q48

Suggested Citation

Grimm, Veronika and Martin, Alexander and Sölch, Christian and Weibelzahl, Martin and Zöttl, Gregor, Market-Based Redispatch May Result in Inefficient Dispatch (December 8, 2020). Available at SSRN: https://ssrn.com/abstract=3120403 or http://dx.doi.org/10.2139/ssrn.3120403

Veronika Grimm

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg - School of Business & Economics ( email )

Nuremburg
Germany

Alexander Martin

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg ( email )

Schloßplatz 4
Erlangen, DE Bavaria 91054
Germany

Christian Sölch (Contact Author)

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg ( email )

Lange Gasse 20
Nuremberg, Bavaria 90403
Germany

Martin Weibelzahl

University of Bayreuth ( email )

Universitatsstr 30
Bayreuth, D-95447
Germany

Gregor Zöttl

Friedrich Alexander Universität Erlangen Nürnberg ( email )

Nuremburg
Germany

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