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Degrees of Coordination in Market Coupling and Counter-Trading

Cross-border trade remains a contentious issue in the restructuring of the European electricity market. This paper analyzes the cross-border trade problem through a set of models that represent different degrees of coordination both between the energy and the transmission markets and among national Transmission System Operators (TSOs). We first present a nodal price-like organization of the system, where Power Exchanges (PXs) and Transmission System Operators are integrated to operate the energy and transmission markets. This system is not implemented in Europe but its success elsewhere makes it the natural reference for the study. We then move to a more realistic representation of the European electricity market based on the so-called market coupling design where energy and transmission are operated separately by PXs and TSOs. We consider different degrees of coordination of the national TSOs' activities to assess the range of inefficiencies that the lack of integration can lead to. The paper supposes price taking agents and hence leaves aside the incentive to game the system induced by zonal systems. Keywords: Market Coupling, Counter-Trading, Coordination, Generalized Nash Equilibrium, European Electricity Market

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Electricity – Transmission and Network Management; Electricity – Markets and Prices

JEL Codes:
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
D44 - Auctions
D42 - Market Structure, Pricing, and Design: Monopoly

Keywords: Market-coupling, Counter-trading, Coordination, Generalized Nash Equilibrium, European electricity market

DOI: 10.5547/01956574.33.3.3

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Published in Volume 33, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.