IAEE Members and subscribers to The Energy Journal: Please log in to access the full text article or receive discounted pricing for this article.

Market-Based Redispatch May Result in Inefficient Dispatch

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.

Download Executive Summary Purchase ( $25 )

Download Appendix 

Keywords: Electricity markets, Redispatch, Congestion management, Computational equilibrium models

DOI: 10.5547/01956574.43.5.csol

References: Reference information is available for this article. Join IAEE, log in, or purchase the article to view reference data.

Published in Volume 43, Number 5 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

© 2022 International Association for Energy Economics | Privacy Policy | Return Policy