How to Design a New Gas Bid Price Ladder?

Abstract

In liberalization policies for network industries market design is primarily considered and approached as a technical and economic design problem. Market design should support an efficient, fair, robust and reliable provision of commodities. Pursuing these goals, technical and economic parameters of market design are commonly analyzed and combined, drawing on more or less explicit theoretical notions, resulting in specific and elaborate market design rules.

A second and much less-stressed facet of market design is that these processes are important arenas in which stakeholders seek to influence the future contours of the market. A wide variety of opinions among stakeholders and experts exists with regard to these end-goals, the consequences of design choices and outcomes in terms of performance. Consequently, market designs are fiercely contested, highly politicized and arduous, lengthy processes.

This article discusses research that was conducted to facilitate the design of a specific component of the new Dutch gas market balancing regime: the bid price ladder design to purchase and sell deficit and excess volumes of gas. The article concludes that market design processes can be considered complex wicked problems instead of economic and/or technical optimization problems. Finally, the article discusses the implications of this conclusion for the market design process.