Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

Abstract: Contrary to the common thought that nodal pricing provides more opportunities for a strategic player to exert market power than the zonal model, we show that in the latter one because of the need for re-dispatch or counter-trading, another extra place is created letting more gaming possibilities. Therefore, if proper market power mitigation approaches are not utilized in both day-ahead and re-dispatch markets, then zonal pricing may be more susceptible to market power, especially in zonal model which is based on available transfer capacity (ATC), strategic player's profit and social welfare can be very volatile. In general, the more network constraints are incorporated in day-ahead market (100% in nodal and almost zero in ATC), the more social welfare is attainable. Hence, nodal model is acquitted from the more market power denunciation.

Keywords: Market design; congestion management; available transfer capacity (ATC); market power; exibility cost of re-dispatch or counter-trading

JEL-codes: C60; L10; L94

17 pages, November 7, 2017

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