Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1278: Redispatch in Zonal Pricing Electricity Markets

Mario Blázquez de Paz ()
Additional contact information
Mario Blázquez de Paz: the Norwegian University of Science and Technology, Trondheim, Postal: and Research Institute of Industrial Economics,, Box 55665, SE-102 15 Stockholm, Sweden

Abstract: Zonal pricing electricity markets operate sequentially. First, the suppliers compete in a spot market. Second, to alleviate the congestion in the transmission line, in a redispatch market, the suppliers in the importing node are called into operation to increase their production, and the suppliers in the exporting node are compensated to reduce their production. I characterize the equilibrium in a zonal market when the competition is imperfect and the spot and redispatch markets operate sequentially. I also work out the equilibrium when the transmission line is taken into account in the spot market, i.e., it is not necessary to introduce a redispatch market to alleviate the congestion in the transmission line. I find that the consumers' welfare and suppliers' profits depend crucially on the type of redispatch design implemented by the auctioneer, and that could introduce long term investment distortions.

Keywords: Electricity auctions; Redispatch design; Transmission constraint; Zonal pricing electricity markets

JEL-codes: D43; D44; L13; L94

30 pages, May 20, 2019

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