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Making market-based redispatch efficient: How to alter distribution effects without distorting the generation dispatch?

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  • Martin Palovic

Abstract

Market-based redispatch is efficient in short-run but provides perverse long-run incentives. This paper explains such incentives by distribution effects of the tool. Therefore, market-based redispatch is conceptualized as a Coasean bargaining about network capacity. This allows altering distribution effects without impeding the short-term efficiency. Two design adjustments are derived. First, long run incremental cost is introduced next to market-based redispatch, as in the UK. Perverse incentives are removed but the long-run optimum is missed. Second, interruptible network connections with secondary market, known from the gas sector, replace market-based redispatch. This solution is efficient in the short- and long-run.

Suggested Citation

  • Martin Palovic, 2022. "Making market-based redispatch efficient: How to alter distribution effects without distorting the generation dispatch?," Bremen Energy Working Papers 0041, Bremen Energy Research.
    • Handle: RePEc:bei:00bewp:0041
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    References listed on IDEAS

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    More about this item

    Keywords

    market based redispatch; distribution effects;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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