www.ucei.org TWO-SETTLEMENT SYSTEMS FOR ELECTRICITY MARKETS: ZONAL AGGREGATION UNDER NETWORK UNCERTAINTY AND MARKET POWER

We analyze welfare properties of two-settlement systems for electricity in the presence of network uncertainty and market power. We formulate and analyze several models which simulate the different market designs adopted or proposed for many electricity markets around the world. In particular, we examine the extent to which a two-settlement system with zonal aggregation in the forward market facilitates forward trading, as well as the welfare and distributional implications of having such zonal aggregation in the presence of network uncertainty. Using a duopoly model over simple two- and threenode networks, we show that for even small probabilities of congestion, forward trading may be substantially reduced, and the market power mitigating effect of forward markets (as shown in Allaz and Vila, 1993) may be nullified to a great extent. We find that the imposition of a delivery requirement on the forward contract in the form of a spot transmission charge alleviates some of the incentive problems associated with zonal aggregation. Even with the imposition of the spot transmission charge, we find that some reduction in forward trading persists due to the segregation of the markets in the constrained state, and the absence of natural incentives for generators to commit to more aggressive behavior in the spot market. In our analysis, we find that the standard assumption of ‘no-arbitrage ’ across forward and spo

Exotic Options for Interruptible Electricity Supply Contracts

This paper is part of the working papers series of the Program on Workable Energy Regulation (POWER). POWER is a program of the University of California Energy Institute, a multicampus research unit of the University of California, located on the Berkeley campu

Multi-settlement Systems for Electricity Markets: Zonal Aggregation under Network Uncertainty and Market Power

We analyze alternative market designs for a multisettlement system for electricity in which the resolution of the transmission network model is increased as time approaches real-time, and uncertainty about congestion patterns is resolved. Variations of such systems are implemented or have been proposed in California and other parts of the U.S. We aim to compare welfare implications of such market designs against more centralized single-settlement systems, such as those implemented in the Northeastern control areas of the U.S. We model the multi-settlement system as a two-period game and compute subgame perfect Cournot-Nash equilibria for the various market designs