Congestion Management Games in Electricity Markets

This paper proposes a game-theoretic model to analyze the strategic behavior of inc-dec gaming in market-based congestion management (redispatch). We extend existing models by considering incomplete information about competitors’ costs and a finite set of providers. We find that these extensions do not dissolve inc-dec gaming, which already occurs in our setup of two regions. We also benchmark market-based redispatch against grid investment, cost-based redispatch, and the Vickrey-Clarke-Groves mechanism. The comparison highlights a significant inefficiency of market-based redispatch and inflated redispatch payments. Finally, we study seven variations of our basic model to assess whether different market fundamentals or market design changes mitigate inc-dec gaming. None of these variations eliminate inc-dec gaming entirely.

Ehrhart, Karl-Martin, Anselm Eicke, Lion Hirth, Fabian Ocker, Marion Ott, Ingmar Schlecht and Runxi Wang (2022), Congestion Management Games in Electricity Markets, ZEW Discussion Paper No. 22-060, Mannheim.