Strategic Generation With Conjectured Transmission Price Responses in a Mixed Transmission Pricing System—Part II: Application

Abstract

The conjectured transmission price response model presented in the first of this two-paper series considers the expectations of oligopolistic generators regarding how demands for transmission services affect the prices of those services. Here, the model is applied to northwest Europe, simulating a mixed transmission pricing system including export fees, a path-based auction system for between-country interfaces, and implicit congestion-based pricing of internal country constraints. The path-based system does not give credit for counterflows when calculating export capability. The application shows that this no-netting policy can exacerbate the economic inefficiencies caused by oligopolistic pricing by generators. The application also illustrates the effects of different generator conjectures regarding rival supply responses and transmission prices. If generators anticipate that their increased demand for transmission services will increase transmission prices, then competitive intensity diminishes and energy prices rise. In the example here, the effect of this anticipation is to double the price increase that results from oligopolistic (Cournot) competition among generators.