What Are Incremental Auctions?

Modified on:: Wed, 19 May, 2021 at 8:21 AM

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Overview


Incremental auctions are auctions in which incremental capacity is offered.

 

According to CAM NC, this type of capacity includes any technical or hypothetical capacity marketed to gauge the economic viability of investing in physical infrastructure or optimization procedures where none currently exists. In other words, incremental auctions are market tests to determine whether there is demand for an increase in capacity availability in a certain area.


As such, incremental auctions can occur in one of the following places:


1. At an already existent Network Point or Points;


2. At a newly established Network Point or Point;


3. At one of the above as physical reverse flow.


Stages of an Incremental Auction


The chart below delineates the distinct stages in the process of assessment and publication of an incremental auction. Fuchsia stages fall under the purview of PRISMA, whereas blue ones are under the responsibility of the operator:


Offer Level Capacity Types


There are five offer level capacity types on PRISMA. These capacity types should only be used in primary auctions. These are:

  • Incremental Offer Level 1
  • Incremental Offer Level 2
  • Incremental Offer Level 3
  • Incremental Offer Level 4
  • Incremental Offer Level 5


To ensure the accurate selection of a successful offer level, the platform does not permit internal competition among distinct offer levels.


NOTE: There's no Offer Level 0, which is represented by the capacity type (FZK, Firm etc.).


Incremental Capacity Auctions


In accordance with CAM regulation, incremental capacity auctions may be offered in parallel with yearly auctions using the same allocation algorithm (Ascending Clock Algorithm). Each offer level represents degrees of network increase. 


For instance, Offer Level 0 denotes the existing capacity. Offer Level 1 denotes the existing capacity plus a certain amount of possible capacity. Likewise, Offer Level 2 stands for the existing capacity plus an even larger amount of possible capacity. And so forth.


So, if there is existing capacity, it must be included at every offer level above 0. 


Now, the number of those levels should be determined beforehand by the relevant TSO. Since different offer levels cannot be bundled, TSOs must create the same number of offer levels as their bundling partners (with the same tariff, etc.) even if they have no incremental capacity to offer.


The successful offer level is unknown before the auctions closes, and an economic test is conducted. So, shippers who want to participate in these auctions must bid on every offer level. 


After the auctions close, the TSO and the regulating authorities must conduct an economic test outside the platform to determine which offer level yielded the best results. That's how the successful offer level will be determined. All other offer levels will be deemed unsuccessful. In other words, there can only be one successful offer level. Incremental auctions may have to be repeated in order to establish the successful product.


Offer Level Linking


When an incremental capacity product - say, offer level x + n - is uploaded, the platform automatically creates a yearly group of auctions, bundled or unbundled, at the network point in question. If there is existing capacity at the network point (offer level 0), then this would also be included in the group for each scenario. 


As an example, imagine an incremental scenario I at network point A. If four offer levels are uploaded for years 1 through 4, the auctions within this scenario would be automatically grouped like so:


S
Sabrina is the author of this solution article.

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