Designing Electricity Auctions

From the inbox, notice of the new Utilities Policy, this a special issue on designing electricity auctions edited by Thomas P. Tangerås, drawn from a workshop in Stockholm, September 2009 hosted by the Research Institute of Industrial Economics.  Tangerås introduces the topic:

What are the boundaries of the market in a system with strong requirements on centralized management of power flows, production and consumption? To what extent can decisions be decentralized to market participants? Increasing shares of volatile intermittent energy production place additional strain on the transmission system and on alternative production sources to absorb the fluctuations. Are the current balancing markets designed to handle extreme short-term fluctuations? Do wholesale electricity markets provide ample investment signals, or is it necessary to introduce additional capacity markets? If so, how should these markets best be designed?

In Sweden and elsewhere, a perpetual discussion revolves around whether electricity producers make excessive profits at the expense of consumers. Electricity markets are vulnerable to the exercise of short-run market power because demand is price insensitive, and production is concentrated to a small number of firms. How do electricity markets really perform? And if markets are susceptible to the exercise of market power, are there more efficient auction designs which distribute more of the surplus to consumers?

The answers to these questions are far from obvious, as witnessed by the numerous auction designs circulating in the universe of liberalized electricity markets.

List of articles in Utilities Policy, Volume 18, Issue 4, (December 2010):

  • Designing electricity auctions: Introduction and overview by Thomas P. Tangerås
  • Three-part auctions versus self-commitment in day-ahead electricity markets by Ramteen Sioshansi, Shmuel Oren, Richard O’Neill
  • Production inefficiency of electricity markets with hydro generation by Andy Philpott, Ziming Guan, Javad Khazaei, Golbon Zakeri
  • Are the British electricity trading and transmission arrangements future-proof? by Richard Green
  • Using forward markets to improve electricity market design by Lawrence M. Ausubel, Peter Cramton
  • Virtual power plant auctions by Lawrence M. Ausubel, Peter Cramton
  • The supply function equilibrium and its policy implications for wholesale electricity auctions by Pär Holmberg, David Newbery
  • Using restructured electricity supply industries to understand oligopoly industry outcomes by Frank A. Wolak

In related news, Texas power system operator ERCOT flipped the switch on its nodal market design yesterday, and so far the lights remain on.  (Actually, I couldn’t find any news stories this morning reporting that the lights remain on, but since the Houston Chronicle is giving us this story, rather than details of horrifying market failure, I’m inferring that things must be working okay.) Lots of market data is available here.