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Faculty of Economics

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Smeers, Y., Oggioni, G., Allevi, E. and Schaible, S.

Generalized Nash Equilibrium and Market Coupling in the European Power System

CWPE1034

Abstract: "Market Coupling'' is currently seen as the most advanced market design in the restructuring of the European electricity market. Market coupling, by construction, introduces what is generally referred to as an incomplete market: it leaves several constraints out of the market and hence avoids pricing them. This may or may not have important consequences in practice depending on the case on hand. QuasiVariational Inequality problems. We apply one of these methods to a subproblem of market coupling namely the coordination of counter-trading. This problem is an illustration of a more general question encountered for instance in hierarchical planning in production management. We first discuss the economic interpretation of the Quasi-Variational Inequality problem. We then apply the algorithmic approach to a set of stylized case studies in order to illustrate the impact of different organizations of counter-trading. The paper emphazises the structuring of the problem. A companion paper considers the full problem of market coupling and counter-trading and presents a more extensive numerical analysis.

Keywords: Generalized Nash Equilibrium, Quasi-Variational Inequalities, Market Coupling, Counter-Trading, European Electricity Market

JEL Codes: D52 D58 Q40

PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1034.pdf

EPRG Paper Link: 1016

Open Access Link: https://doi.org/10.17863/CAM.1104