A Comparison of Electricity Market Designs in Networks

Two basic market designs are used for the trading of electricity in meshed electricity networks with transmission constraints. Analytical results show that, in two-node networks, a market design integrating transmission and energy markets reduces the ability of electricity generators to exercise market power, relative to a design with separated markets for transmission and energy designs. In multi-node networks, countervailing effects make an analytic analysis difficult. We present a formulation of both market designs as an equilibrium problem with equilibrium constraints, and apply our model to a realistic node network for Belgium, Germany, France and the Netherlands. We find that the integrated market design results in lower prices.