Congestion Management Games in Electricity Markets

39 Pages Posted: 14 Dec 2022 Last revised: 7 Feb 2023

See all articles by Karl-Martin Ehrhart

Karl-Martin Ehrhart

Karlsruhe Institute of Technology (KIT)

Anselm Eicke

Hertie School; Massachusetts Institute of Technology (MIT)

Lion Hirth

Neon Neue Energieökonomik GmbH; Hertie School of Governance

Fabian Ocker

Karlsruhe Institute of Technology - Department of Economics and Management

Marion Ott

ZEW – Leibniz Centre for European Economic Research

Ingmar Schlecht

University of Basel - Center for Economic Science

Runxi Wang

Karlsruhe Institute of Technology

Date Written: 2022

Abstract

This paper proposes a game-theoretic model to analyze the strategic behavior of inc-dec gaming in market-based congestion management (redispatch). We extend existing models by considering incomplete information about competitors’ costs and a finite set of providers. We find that these extensions do not dissolve inc-dec gaming, which already occurs in our setup of two regions. We also benchmark market-based redispatch against grid investment, cost-based redispatch, and the Vickrey-Clarke-Groves mechanism. The comparison highlights a significant inefficiency of market-based redispatch and inflated redispatch payments. Finally, we study seven variations of our basic model to assess whether different market fundamentals or market design changes mitigate inc-dec gaming. None of these variations eliminate inc-dec gaming entirely.

Keywords: Energy market, Game theory, Auctions/bidding, Congestion management, Inc-dec gaming

JEL Classification: D43, D44, L13, Q41, Q48

Suggested Citation

Ehrhart, Karl-Martin and Eicke, Anselm and Hirth, Lion and Ocker, Fabian and Ott, Marion and Schlecht, Ingmar and Wang, Runxi, Congestion Management Games in Electricity Markets ( 2022). ZEW - Centre for European Economic Research Discussion Paper No. 22-060, Available at SSRN: https://ssrn.com/abstract=4300874 or http://dx.doi.org/10.2139/ssrn.4300874

Karl-Martin Ehrhart (Contact Author)

Karlsruhe Institute of Technology (KIT) ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

Anselm Eicke

Hertie School ( email )

Berlin, 30123
Germany

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Lion Hirth

Neon Neue Energieökonomik GmbH ( email )

Karl-Marx-Platz 12
12043
Berlin, 12043
Germany

HOME PAGE: http://www.neon-energie.de

Hertie School of Governance ( email )

Friedrichstraße 180
Berlin, 10117
Germany

Fabian Ocker

Karlsruhe Institute of Technology - Department of Economics and Management ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

Marion Ott

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Ingmar Schlecht

University of Basel - Center for Economic Science ( email )

Basel, 4051
Switzerland

Runxi Wang

Karlsruhe Institute of Technology

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