The stakeholders are TradeExtension, Inno:vasion, Energinet.dk, DONG and the Danish Competition Authority (DCA). The Alexandra Institute and Partisia will provide expertise in implementing the required systems securely and efficiently.
TradeExtension is a market leader in electronic negotiation and has long experience of combinatorial as well as multi-attribute auctions and auction procurements. TradeExtension advise their clients on auction type and details of auction protocols for particular situations. Such advise is based in part on equilibrium analysis. Also, when actually running the auction, TradeExtension needs to solve complex combinatorial optimization problems. TradeExtension will collaborate on extending and improving the analytical as well as computational aspects of their methods. We will develop better more efficient algorithms for computationally characterizing the equilibria of first price auctions, and at making better algorithms for solving the combinatorial optimization problems involved in running combinatorial auctions.
Inno:vasion has extensive involvement in public procurement of goods and services. They face the problem of designing and staging complicated procurement auctions, in particular multi-attribute ones. Here the main challenge is the balancing of the seller´s costs of delivering different attributes (e.g. various quality levels) and the buyer's benefits of these attributes. While a traditional negotiation process allows full flexibility, it is typically ill structured and opaque. On the other hand, multi-attribute auctions specify transparent rules for how this balancing of costs and benefits takes place. With Inno:vasion we will develop cost efficient multi-attribute auctions that better imitate the flexibility of a negotiation process without hampering competition.
In particular two issues will be addressed:
With DONG Energy, we intend to explore different aspects of auction design in new product markets. One is the sale of gas storage capacity, recently started using a relatively simple English auction form and one product (capacity). We will explore the pros and cons of alternative auctions, including combinatorial auctions in a multiple products space (capacity, time, options etc). Another is the design of auction mechanism for virtual power plants which involve intricate combinatorial issues. Subject to a separate later decision, a project with DONG Energy may also be initiated to develop the company’s existing straw procurement platform to be fully digitalised and encrypted with a view to also developing it into a flexible procurement platform that can handle several types of biomass and “complex bidding” (multi-attribute) that takes into account for example bids that are conditional on logistical, time, quality and other features. Examples are energy crops and animal waste.
With Energinet.dk, we will explore the intraday balancing issue. This will involve both the development of balancing models based on advanced optimization and the development of new economic products (capacity provision with different characteristics) and auction-like trading mechanisms. We will also explore economic and computational issues related with market coupling. Market coupling is in the process of being established between Denmark and Germany, and will be an important general issue in Europe the coming years. Using implicit auctions, market coupling is a possibility for day-ahead congestion management which leads to the highest efficient use of existing cross-border interconnections.
