Literature review. Pricing rule alternatives for the European day-ahead market

• Autorzy: Weißensteiner Felix

Identyfikatory

DOI

10.7494/manage.2023.24.2.187

• Języki publikacji: EN

Abstrakty

EN

This literature review delves into the intricate realm of pricing rules in the day-ahead electricity market, spurred by a notable surge in 2022 electricity prices. Employing a comparative analysis of uniform pricing (UP), discriminatory pricing (DP), and the Vickrey–Clarke–Groves (VCG) pricing rule, the study navigates the complexities of these mechanisms. The evaluation unveils contrasting perspectives: the political push for consumer-friendly low prices versus the efficiency aspiration for a self-regulating market. DP, minimizing average prices but increasing volatility, and VCG, excelling in productive efficiency, are pitted against UP, the prevailing yet imperfect norm. The findings underscore the nuances of each rule"," DP leads to reduced average prices and heightened volatility, while VCG ensures superior productive efficiency. Despite UP’s simplicity, it prompts inefficiencies and political costs. These insights illuminate the pivotal choice faced by policymakers, balancing efficiency, fairness, and market sustainability.

Słowa kluczowe

EN

day-ahead market; uniform pricing; discriminatory pricing; Vickrey–Clarke–Groves

• Wydawca: Wydawnictwa AGH
• Czasopismo: Managerial Economics
• Rocznik: 2023
• Tom: Vol. 24, no. 2
• Strony: 187–--217
• Opis fizyczny: Bibliogr. 52 poz., rys., tab.

Twórcy

autor

Weißensteiner Felix

• University of Graz, Austria

Bibliografia

• [1] Aliabadi, D.E., Kaya, M. and Şahin, G. (2017) ‘An agent-based simulation of power generation company behavior in electricity markets under different market-clearing mechanisms’, Energy Policy, vol. 100, pp. 191–205.
• [2] Ausubel, L.M., Cramtom, P., Pycia, M., Rostek, M. and Weretka, M. (2014) ‘Demand reduction and inefficiency in multi-unit auctions’, The Review of Economic Studies, vol. 81, pp. 1366–1400.
• [3] Azadeh, A., Skandari, M.R. and Maleki-Shoja, B. (2010) ‘An integrated ant colony optimization approach to compare strategies of clearing market in electricity markets: Agent-based simulation’, Energy Policy, vol. 38, pp. 6307–6319.
• [4] Bower, J. (2002) ‘Why did electricity prices fall in England and Wales? Market mechanism or market structure?‘, The Oxford Institute of Energy Studies, https://doi.org/10.26889/1901795225.
• [5] Bower, J. and Bunn, D. (2001) ‘Experimental analysis of the efficiency of uniform-price versus discriminatory auctions in the England and Wales electricity market’, Journal of Economic Dynamics and Control, vol. 25, pp. 561–592.
• [6] Bracht van, N., Maaz, A., and Moser A. (2019) Simulating electricity market bidding and price caps in the European power markets. S18 Report, European Commission.
• [7] Cheng, L., Chen, Y. and Liu, G. (2022) ‘2PnS-EG: A general two-population n-strategy evolutionary game for strategic long-term bidding in a deregulated market under different market clearing mechanisms’, International Journal of Electrical Power & Energy Systems, vol. 142, 108182.
• [8] Clarke, E.H. (1971) ‘Multipart pricing of public goods’, Public Choice, vol. 11, pp. 17–33.
• [9] Cramton, P. and Stoft, S. (2007) ‘Why we need to stick with uniform-price auctions in electricity markets’, The Electricity Journal, vol. 20, pp. 26–37.
• [10] Dechenaux, E. and Kovenock, D. (2007) ‘Tacit collusion and capacity withholding in repeated uniform price auctions‘, The RAND Journal of Economics, vol. 38, pp. 1044–1069.
• [11] Engelmann, D. and Grimm, V. (2009) ‘Bidding behavior in multi-unit auctions – an experimental investigation’, Economic Journal, vol. 119, pp. 855–882
• [12] Evans, J. and Green, R. (2003) ‘Why did British electricity prices fall after 1998?‘, Working Paper, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
• [13] Fabra, N. (2003) ‘Tacit collusion in repeated auctions: Uniform versus discriminatory’, The Journal of Industrial Economics, vol. 51, pp. 271–293.
• [14] Fabra, N., von der Fehr, N.H. and Harbord, D. (2002) ‘Modeling electricity auctions’, The Electricity Journal, vol. 15, pp. 72–81.
• [15] Fabra, N., von der Fehr, N.H. and Harbord, D. (2006) ‘Designing electricity auctions’, The RAND Journal of Economics, vol. 37, pp. 23–46.
• [16] Fabra, N., von der Fehr, N.M. and de Frutos, M. (2011) ‘Market Design and Investment Incentives’, The Economic Journal, vol. 121, pp. 1340–1360.
• [17] Federico, G. and Rahman, D. (2003) ‘Bidding in an electricity pay-as-bid auction’, Journal of Regulatory Economics, vol. 24, pp. 175–211.
• [18] Fehr von der, N.H. and Harbord, D. (1998) ‘Competition in electricity spot markets: Economic theory and international experience’, Memorandum, No.05/1998, University of Oslo, Department of Economics, Oslo.
• [19] Grimm, V., Ockenfels, A. and Zoettl, G. (2008) ‘Strommarktdesign: Zur Ausgestaltung der Auktionsregeln an der EEX’, Zeitschrift für Energiewirtschaft, vol. 32, pp. 147–161.
• [20] Hailu, A. and Thoyer, S. (2007) ‘Designing multi-unit multiple bid auctions: An agent-based computational model of uniform, discriminatory and generalised vickrey auctions’, The Economic Record, vol. 83, pp. S57–S72.
• [21] Hailu, A. and Thoyer, S. (2010) ‘What format for multi-unit multiple-bid auctions? Agent-based simulation of auction performance and nonlinear bidding behavior’, Computational Economics, vol. 35, pp. 189–209.
• [22] Harbord, D. and McCoy, C. (2000) ‘Mis-designing the UK electricity market?’, European Competition Law Review, vol. 21.
• [23] Haucap, J. (2013) ‘Braucht Deutschland einen Kapazitätsmarkt für eine sichere Stromversorgung?‘, Zeitschrift für Wirtschaftspolitik, vol. 62, pp. 257–269.
• [24] Heim, S. and Götz, G. (2021) ‘Do pay-as-bid auctions favor collusion? Evidence from Germany’s market for reserve power’, Energy Policy, vol. 155, 112308.
• [25] Holmberg, P. (2009) ‘Supply function equilibria of pay-as-bid auctions’, Journal of Regulatory Economics, vol. 36, pp. 154–177.
• [26] Holmberg, P. and Wolak, F. (2015) Electricity markets: Designing auctions where suppliers have uncertain costs. Technical Report. Energy Policy Research Group, University of Cambridge.
• [27] Hudson, R. (2000) Analysis of uniform and discriminatory price auctions in restructured electricity markets, Oak Ridge National Laboratory, Oak Ridge TN.
• [28] Jamasb, T. and Pollitt, M. (2005) ‘Electricity market reform in the European union: Review of progress toward liberalization integration’, The Energy Journal, vol. 26, pp. 11–41.
• [29] Joskow, P.L. and Kahn, E. (2002) ‘A quantitative analysis of pricing behavior in California’s wholesale electricity market during summer 2000’, The Energy Journal, vol. 23, pp. 1–35.
• [30] Kagel, J.H. and Levin, D. (2001) ‘Behavior in multi-unit demand auctions: Experiments with uniform price and dynamic Vickery auctions’, Econometrica, vol. 69, pp. 413–454.
• [31] Kahn, A.E., Cramton, P.C., Porter, R.H. and Tabors, R.D. (2001) ‘Uniform pricing or pay-as-bid pricing: a dilemma for California and beyond’, The Electricity Journal, vol. 14, pp. 70–79.
• [32] Klemperer, P. (2002) ‘What really matters in auction design’, Journal of Economic Perspectives, vol. 16, pp. 169–189.
• [33] Klemperer, P.D. and Meyer, M.A. (1989) Supply function equilibria in oligopoly under uncertainty, Econometrica, vol. 57, pp. 1243–1277.
• [34] Lange, S., Sokolowski, P. and Yu, X. (2022) ‘An efficient, open-bid procurement auction for small-scale electricity markets’, Applied Energy, vol. 314, 118867.
• [35] Moret, S., Babonneau, F., Bierlaire, M. and Maréchal, F. (2020) ‘Overcapacity in European power systems: Analysis and robust optimization approach’, Applied Energy, vol. 259, 113970.
• [36] Ockenfels, A. (2007) ‘Electricity exchange and market power; Stromboerse und Marktmacht‘, ET, Energiewirtschaftliche Tagesfragen, vol. 57, pp. 44–60.
• [37] Ocker, F., Ehrhart, K.M. and Belica, M. (2018) ‘Harmonization of the European balancing power auction: A game-theoretical and empirical investigation’, Energy Economics, vol. 73, pp. 194–211.
• [38] Rassenti, S., Smith, V. and Wilson, B. (2003) ‘Discriminatory price auctions in electricity markets: Low volatility at the expense of high price levels’, Journal of Regulatory Economics, vol. 23, pp. 109–123.
• [39] Sessa, P.G., Walton, N. and Kamgarpour, M. (2017) ‘Exploring the Vickrey–Clarke–Groves mechanism for electricity markets’, IFAC-PapersOnLine, vol. 50, pp. 189–194.
• [40] Sioshansi, F.P. (2006) ‘Electricity market reform: What has the experience taught us thus far?’, Utilities Policy, vol. 14, pp. 63–75.
• [41] Soloviova, M. and Vargiolu, T. (2021) ‘Efficient representation of supply and demand curves on day-ahead electricity markets’, The Journal of Energy Markets, https://www.doi.org/10.21314/JEM.2020.218.
• [42] Sugianto, L. and Liao, K. (2014) ‘Comparison of different auction pricing rules in the electricity market’, Modern Applied Science, vol. 8, pp. 147–163.
• [43] Tenorio, R. (1997) ‘On strategic quantity bidding in multiple unit auctions’, The Journal of Industrial Economics, vol. 45, pp. 207–217.
• [44] Tierney, S.F., Schatzki, T. and Mukerji, R. (2008) ‘Uniform-pricing versus pay-as-bid in wholesale electricity markets: does it make a difference?’, New York ISO.
• [45] Vasin, A. (2014) ‘Game-theoretic study of electricity market mechanisms’, Procedia Computer Science, vol. 31, pp. 124–132.