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Efficiency and Income Shares in High‐Demand Energy Networks: Who Receives the Congestion Rents when a Line is Constrained?
Author(s) -
Backerman Steven R.,
Rassenti Stephen J.,
Smith Ver L.
Publication year - 2000
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.00109
Subject(s) - economic rent , bidding , economics , microeconomics , marginal cost , electricity market , electricity , line (geometry) , geometry , mathematics , electrical engineering , engineering
We create an experimental spot market for electricity with demand side bidding, and use experimental methods to study the efficiency of the market and the income shares of the generators, wholesale buyers and transmission line operators. Nodal and line prices are computed on the basis of short run marginal costs, energy losses in transmission, and network opportunity costs when a line is constrained. We find that a traditional, competitive model, which yields congestion rents for the transmission line owners, does not explain the observed bidding behavior; and that subtle differences in institutional rules can cause changes in market efficiency.