Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/298003 
Year of Publication: 
2024
Series/Report no.: 
ZEW Discussion Papers No. 24-025
Publisher: 
ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung, Mannheim
Abstract: 
This paper discusses a capacity-based redispatch mechanism in which awarded market participants are compensated for their availability for redispatch, rather than activation. The rationale is to develop a market design that prevents so-called 'inc-dec gaming' when including flexible consumers with a market-based approach. We conduct a game-theoretical analysis of a capacity-based redispatch mechanism. Our analysis reveals that despite its intention, the capacity-based redispatch is prone to undesirable behavior of market participants. The reason is that the availability payment incentivizes participants to change their energy consumption (generation) behavior. However, this also applies to undesired participants who increase the redispatch requirement through participation. Under certain assumptions, the additional redispatch potential equals the additional redispatch demand it creates. Consequently, the mechanism does not resolve network constraints, while causing costs for the compensation payments. Furthermore, we study three alternative implementation options, none of which resolves the underlying problem. It follows from our analysis that a mechanism can only be promising if it is capable to distinguish between the potential participants to exclude the undesirable ones.
Subjects: 
Energy market
Congestion management
Capacity-based redispatch
Game theory
Auctions
JEL: 
D43
D44
L13
Q41
Q48
Document Type: 
Working Paper

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