Working Paper No. 1098

Auction Performance on Wholesale Electricity Markets in the Presence of Transmission Constraints and Transmission Costs

Published: December 14, 2015Pages: 51Keywords: Electricity auctions; Transmission constraint; Transmission costs; Market designJEL-codes: D43; D44; L13; L94

Auction Performance on Wholesale Electricity Markets in the Presence of Transmission Constraints and Transmission Costs Mario Blázquez de Paz


Electricity markets are becoming more integrated around the world. However, the knowledge of the effects of different auction formats on suppliers’ strategies in the presence of transmission constraints and transmission costs is still very limited. In this paper, I analyze the performance of uniform and discriminatory price auctions in the presence of transmission constraints and transmission costs.

When the transmission capacity is binding, the discriminatory price auction could outperform the uniform price auction, minimizing the equilibrium price and the transmission costs. Moreover, when the transmission capacity is binding, an increase in transmission costs could be pro-competitive when the auction is discriminatory, but not when the auction is uniform.

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