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Definition of a Balancing Point for Electricity Transmission Contracts

By Luis Olmos and Karsten Neuhoff


Electricity transmission contracts allocate scarce resources, allow hedging against locational price differences and provide information to guide investment. Liquidity is increased if all transmission contracts are defined relative to one balancing point, then a set of two contracts can replicate any point to point contract. We propose an algorithm and apply it to the European electricity network to identify a well connected balancing point that exhibits minimal relative cross-price responses and hence reduces market power exercised by generation companies. Market level data which is difficult to obtain or model such as price levels in different regions or that is dependent on the time scale of interaction, as demand elasticity, is not required. The only critical input quantities are assumptions on future transmission constraint patterns

Topics: Classification-JEL: D43, L94, L50, Keywords: Transmission contract design, Congestion management, Market Power, European electricity network
Publisher: Faculty of Economics
Year: 2004
OAI identifier:
Provided by: Apollo

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