Journal
EUROPEAN JOURNAL OF OPERATIONAL RESEARCH
Volume 181, Issue 3, Pages 1396-1412Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.ejor.2005.12.040
Keywords
OR in energy; cross-border trade; Florence regulatory forum; coordinated auction; regulation; two-stage equilibrium; imperfect competition
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The regulation on cross-border exchanges of electricity in the European Union is meant to enhance the trade of electricity between Member States, by facilitating access to the network and improving the management of congestion at the interconnections. This paper presents a computational model that embeds these two features. The problem is cast in the form of a two-stage equilibrium between regional Regulators. In the first stage, they decide on the allocation of their regional network costs between generators and customers. Either they maximise their regional welfare non-cooperatively (Nash equilibrium), or they centralise the decision as a super-regulator (leading to a cooperative equilibrium). In the second-stage equilibrium, the consequences of first-stage's decisions are assessed by modelling the energy market as the result of imperfect competition equilibrium on competitive market, coupled with regulated pricing on the domestic less competitive markets. The '' rules '' that come out of the first-stage game largely influence the final equilibrium. We illustrate this on an extensive numerical example, showing that the model behaves properly and identifying policy issues worth of further investigations. (C) 2006 Elsevier B.V. All rights reserved.
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