Search

"Market Coupling'' is currently seen as the most advanced market design in the restructuring of the European electricity market. Market coupling, by construction, introduces what is generally referred to as an incomplete market: it leaves several constraints out of the market and hence avoids pricing them. This may or may not have important consequences in practice depending on the case on hand. Quasi-VariationalInequality problems and the associated Generalized Nash Equilibrium can be used for representing incomplete markets. Recent papers propose methods for finding a set of solutions of Quasi-Variational Inequality problems. We apply one of these methods to a subproblem of market coupling namely the coordination of counter-trading. This problem is an illustration of a more general question encountered for instance in hierarchical planning in production management. We first discuss the economic interpretation of the Quasi-Variational Inequality problem. We then apply the algorithmic approach to a set of stylized case studies in order to illustrate the impact of different organizations of counter-trading. The paper emphazises the structuring of the problem. A companion paper considers the full problem of market coupling and counter-trading and presents a more extensive numerical analysis.

Cross-border trade remains a contentious issue in the restructuring of the European electricity market. Difficulties stem from the lack of a common market design, the separation between energy and transmission markets and the insufficient coordination between Transmission System Operators (TSOs). This paper analyzes the cross-border trade problem through a set of models that represent different degrees of coordination both between the energy and transmission markets and among national TSOs.We first present the optimal organisation, not implemented in Europe, where energy and transmission are integrated according to the nodal price paradigm and Power Exchanges (PXs) and TSOs are integrated. This is our reference case. 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. When considering different degrees of coordination of the national TSOs’ activities, we unexpectedly find that some arrangements are more efficient than the lack of coordination might suggest. Specifically we find that even without a formal coordination of the TSOs’ counter-trading operations, non discriminatory access to common counter-trading resources for all TSOs may lead to a partial implicit coordination of these TSOs. In other words, an internal market of counter-trading resources partially substitutes the lack of integration of the TSOs. While a full access to counter-trading resources is a weaker requirement than the horizontal integration of the TSO, it is still quite demanding. We show that quantitative limitations to the access of these resources decrease the efficiency of counter-trading. The paper supposes price taking agents and hence leaves aside the incentive to game the system induced by zonal systems.

The progressive relocation of part of the Energy Intensive Industries (EIIs) out of Europe is one of the possible consequences of the combination of emission charges and higher electricity prices entailed by the EU-Emission Trading Scheme (EU-ETS). In order to mitigate this effect, EIIs have asked for special power contracts whereby they would be supplied from dedicated power capacities at average (capacity, fuel, transmission and emission allowance) costs. We model this situation on a prototype power system calibrated on four countries of Central Western Europe. In order to capture the main feature of EIIs' demand, we separate the consumer market in two segments: EIIs and the rest. EIIs buy electricity at average cost price while the rest pays marginal cost. We consider two different types of EIIs' contractual arrangements: a single region wide and zonal average cost prices. We also analyze the cases where generators only rely on existing capacities or can invest in new ones. We find that these average cost contracts can indeed partially mitigate the incentive to relocate activities but with quite diverse regional impacts depending on different national power policies. Models are formulated as a non-monotone complementarity problems with endogenous energy, transmission and allowance prices and are implemented in GAMS.