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Increasing resilience of electricity networks: Auctioning of priority supply to minimize outage costs

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  • Anna Pechan
  • Gert Brunekreeft
  • Martin Palovic

Abstract

This article presents an approach to minimize the outage costs during power supply disruptions and, thus, to incentivize efficient resilience investment by network users. The central problem to be solved is the information asymmetry between network operators and network users on outage and backup costs. We present an auction of priority positions among network users based on the Vickrey-Clarke-Groves mechanism, using a numerical example, to solve the problem. Under the mechanism, each winning bidder pays for the externality exerted on the other bidders by holding a certain position, excluding her own bid, which induces truthful bidding. Minimizing the damage from power supply interruptions, the mechanism improves the resilience of the power system not only in the short term but also in the long term.

Suggested Citation

  • Anna Pechan & Gert Brunekreeft & Martin Palovic, "undated". "Increasing resilience of electricity networks: Auctioning of priority supply to minimize outage costs," Bremen Energy Working Papers 0045, Bremen Energy Research.
    • Handle: RePEc:bei:00bewp:0045
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    File URL: https://bremen-energy-research.de/wp-content/bewp/bewp45.pdf
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    References listed on IDEAS

    as
    1. Chao, Hung-po & Wilson, Robert, 1987. "Priority Service: Pricing, Investment, and Market Organization," American Economic Review, American Economic Association, vol. 77(5), pages 899-916, December.
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    3. Hal R. Varian & Christopher Harris, 2014. "The VCG Auction in Theory and Practice," American Economic Review, American Economic Association, vol. 104(5), pages 442-445, May.
    4. Edward Clarke, 1971. "Multipart pricing of public goods," Public Choice, Springer, vol. 11(1), pages 17-33, September.
    5. Noussair, Charles & Porter, David, 1992. "Allocating priority with auctions: An experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 19(2), pages 169-195, October.
    6. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2007. "Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords," American Economic Review, American Economic Association, vol. 97(1), pages 242-259, March.
    7. Klemperer, Paul, 2002. "How (not) to run auctions: The European 3G telecom auctions," European Economic Review, Elsevier, vol. 46(4-5), pages 829-845, May.
    8. Hal R. Varian, 2009. "Online Ad Auctions," American Economic Review, American Economic Association, vol. 99(2), pages 430-434, May.
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    More about this item

    Keywords

    resilience; electricity; network; regulation; auction;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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