Market Incompleteness in Regional Electricity Transmission. Part I: The Forward Market

The paper analyses various proposals for the organization of regional electricity transmission in terms of the market incompleteness that they may implicitly assume. Elementary notions of variational inequalities constitute the analytical tool used throughout the paper. The discussion is conducted with reference to the flowgate debate in the US and European proposals for the organization of cross border electricity trade. This first part of the paper discusses market incompleteness in the forward (day ahead) market. The main results can be summarized as follows. An energy market without a market for transmission services is incomplete and hence inefficient. The nodal and flowgate models complete the market when one does not consider contingencies. One can define a notion of transmission capacity (called an extended flowgate) by aggregating line capacities using spot prices. This transmission capacity completes the market and reduces the number of necessary flowgates (possibly to one). But these extended flowgates have variable capacities. As in the case of the nodal model, extended flowgates can accommodate contingencies in the forward market.