The effect of counter-trading on competition in electricity markets

J. Dijk, Bert Willems

Research output: Contribution to journalArticleScientificpeer-review

22 Citations (Scopus)
308 Downloads (Pure)

Abstract

In a competitive electricity market, nodal pricing is the most efficient way to manage congestion. Counter-trading is inefficient as it gives the wrong long term signals for entry and exit of power plants. However, in a non-competitive market, additional entry will improve the competitiveness of the market, and will increase social benefit by reducing price–cost margins. This paper studies whether the potential pro-competitive entry effects could make counter-trading more efficient than nodal pricing. We find that this is unlikely to be the case, and expect counter-trading to have a negative effect on overall welfare. The potential benefits of additional competition (more competitive prices and lower production cost) do not outweigh the distortions (additional investment cost for the entrant, and socialization of the congestion cost to final consumers).
Original languageEnglish
Pages (from-to)1764-1773
JournalEnergy Policy
Volume39
Issue number3
DOIs
Publication statusPublished - 2011

Fingerprint Dive into the research topics of 'The effect of counter-trading on competition in electricity markets'. Together they form a unique fingerprint.

  • Cite this