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Netting of Capacity in Interconnector Auctions

Abstract:
Scarce interconnector capacities are a severe obstacle to transregional competition and a unified market for electricity in the European Union. However, physically the interconnectors are rarely used up to capacity. This is due to the fact that the current allocation schemes make only limited use of the fact that currents in opposing directions cancel out. We propose a �netting� auction mechanism which makes use of this and in which even small transmission capacities can generate large competitive pressure in adjacent markets. Netting increases the usage of capacity and reduces the auctioneer�s incentive to withhold capacity from the auction.

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Energy Specializations: Electricity – Markets and Prices ; Electricity – Policy and Regulation

JEL Codes:
D42 - Market Structure, Pricing, and Design: Monopoly
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Electricity markets, divisible goods auctions, interconnector, competition policy, EU

DOI: 10.5547/ISSN0195-6574-EJ-Vol28-No1-6


Published in Volume 28, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.