Market-Based Redispatch May Result in Inefficient Dispatch

25 Pages Posted: 13 Feb 2018 Last revised: 10 Sep 2018

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: July 12, 2018

Abstract

In this paper we analyze a uniform price 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 a cost-based redispatch to a market-based redispatch mechanism. For networks with at least three nodes we show that in contrast to cost-based redispatch, in the case of market-based redispatch the cost-minimizing allocation may not be short-run efficient. As we demonstrate, the possibility of the transmission system operator to reduce market-based redispatch cost at the expense of a reduced welfare may be driven by the electricity supply side or the electricity demand side. Based on these results, we propose a new hybrid approach where the transmission system operator implements the efficient (instead of the cost minimizing) dispatch and uses market-based redispatch compensations.

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

JEL Classification: D41, D47, D58, D78, K23, 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 (July 12, 2018). 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, 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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