A model-based analysis of the AggregateEU mechanism: Implications of overbidding and non-commitment

Abstract

AggregateEU is a new centralised mechanism that provides a no-commitment platform to trade natural gas in the European Union. Throughout the consultation process, AggregateEU has been mocked as `Tinder of the European gas markets' as it helps consumers and suppliers find partners, but leaves it up to the matched partners to decide whether to contract for potential trade. The non-commitment nature leads to substantial overbidding and many non-realised matches. We propose a quantitative modelling framework to study the effect of overbidding in the AggergateEU demand aggregation or joint purchasing mechanism. We conclude that the mechanism is prone to overbidding and that overbidding has ambiguous effects on trade. Depending on the parameters, overbidding may facilitate trade, but may also result in highly inefficient outcomes when overbidding is combined with miscoordination over the delivery points. Suggested remedies include allowing for convex bids, restrictions on overbidding, or giving up part of the non-binding character of the market. Our results suggest that a potential future mechanism allowing the coordination of multiple delivery points could enhance the efficiency of gas markets.