Academic dissertation for the Degree of Doctor of Philosophy in Economics
Author: Ewa Lazarczyk
Advisor: RIchard Friberg
Dept: Department of Economics
University: Stockholm School of Economics
City: Stockholm, Sweden
ISBN: 978-91-7258-927-8 (printed), 978-91-7258-928-5 (pdf)
Keywords: Congestion management, wholesale electricity market, transmission network, nodal pricing, zonal pricing, counter-trading, discriminatory pricing, Urgent Market Messages (UMMs), news, private information, unplanned failures, withholding, economic incentives, intra-day electricity market, forward premia
In this dissertation, Ewa presents four essays, all discussing the topic of electricity markets. It does not provide a full picture but is rather a selection of topics revolving around the issues that she has been working on during these last few years and found particularly interesting.
The concept of congestion management is linked with the necessity of an instantaneous balancing of demand and supply in the electricity markets. Transmission constraints, that are a result of the physical properties of the electrical grid, can be managed in various ways. In Europe the EU’s regulations recommend market-based designs that offer secure and efficient handling of transmission congestion. The three most common designs are nodal, zonal and discriminatory pricing.
In the nodal design the electrical network is divided into nodes and electricity prices are calculated for each and every one of them; this is a design that reflects transmission cost which is equal to the price difference between the exporting and importing node.
The zonal pricing model groups several nodes into one zone. These zones differ in size; they can cover a whole country or just a region. Each of the zones has a uniform price and it considers only the congestion between zones; the internal congestion often has to be solved with an additional mechanism – a redispatch.
The third design – discriminatory pricing – considers all transmission constraints but there is no uniform market price as the accepted offers are paid as bid. Nodal pricing is widely used in the USA; it is also present in Argentina, Chile, New Zealand, Russia and Singapore. The zonal design is common across European markets while Italy, Iran and British real-time market use the discriminatory design.
Congestion management is discussed in the first essay, Comparison of congestion management techniques: Nodal, zonal and discriminatory pricing, where a game-theoretical model evaluating the three most commonly used market designs for managing congestion is presented.
In the second essay, Market-Specific News and its Impact on Forward Premia on Electricity Markets, Ewa studies the impact of market-specific news on the short-term forward premia on the Nordic electricity market.
The third essay, Strategic withholding through production failures, proposes a method verifying whether production failures are caused only by technical problems or whether economic incentives play a role when electricity producers announce sudden outages.
The fourth and last essay, Private and public information on the Nordic intraday electricity market, relates to the strong form market efficiency and looks for the evidence of a systematic use of private information in electricity trading.