Theory and Policy
The Loyola de Palacio Series on European Energy Policy
Edited by Pippo Ranci and Guido Cervigni
In this chapter we discuss the impact of electricity transmission technology on the design and outcome of electricity markets. Electricity is transported on a transmission network from the place where it is generated to the place where it is used. Transmission congestion occurs when generation and demand schedules cleared in the market lead to a set of power flows violating one or more network constraints. When this happens, congestion must be alleviated. Electricity transmission is different from other goods and commodities for which transport flows can be re-routed relatively easily. On the contrary, increasing (net) injections at some locations and decreasing them at others is the primary and often only option to relieve congestion. Market arrangements differ across electricity markets in the way they induce market participants to deviate from the injection/withdrawal levels they would implement in the absence of any transmission constraints. Two general approaches can be identified.
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