Nodal Pricing in the European Internal Electricity Market

This report summarises the findings of a project, awarded to Tractebel-Engie, to analyse the possibility and the effects of implementing nodal pricing in the European Internal electricity market based on the current and proposed legal framework. The report presents the origins and organisation of nodal pricing and the documented costs and benefits and describes the implementation challenges of applying nodal pricing in the EU.JRC.C.3-Energy Security, Distribution and Market

On the Long-Term Efficiency of Market Splitting in Germany

In Europe, the ongoing renewable expansion and delays in the planned grid extension have intensified the discussion about an adequate electricity market design. Against this background, we jointly apply an agent-based electricity market model and an optimal power flow model to investigate the long-term impacts of splitting the German market area into two price zone. Our approach allows capturing long-term investment and short-term market behavior under imperfect information. We find strong impacts of a German market splitting on electricity prices, expansion planning of generators and required congestion management. While the congestion volumes decrease significantly under a market split in the short term, the optimal zonal configuration for 2020 becomes outdated over time due to dynamic effects like grid extension, renewable expansion and new power plant investments. Policymakers and regulators should therefore regularly re-assess bidding zone configurations. Yet, this stands in contrast to the major objective of price zones to create stable locational investment incentives

Hybrid Pricing in a Coupled European Power Market with More Wind Power

In the European market, the promotion of wind power leads to more network congestion. Zonal pricing (market coupling), which does not take the physical characteristics of transmission into account, is the most commonly used method to relieve congestion in Europe. Zonal pricing fails to provide adequate locational price signals regarding the energy resource scarcity and thus creates a large amount of unscheduled cross-border flows originating from wind-generated power, making the interconnected grid less secure. Prior studies show that full nodal pricing works better in integrating wind power into the grid. In this paper we investigate the effects of applying a hybrid congestion management model, i.e. nodal pricing model for one country embedded in a zonal pricing system for the rest of the market. We test how nodal pricing works in such a hybrid context with more wind power. We find that, compared to full nodal pricing, hybrid pricing fails to fully utilize all the resources in the network and some wrong price signals might be given. However, hybrid pricing still performs better than zonal pricing. The results from the hybrid pricing model of Poland, Germany, Slovakia and the Czech Republic show that, within the area applying nodal pricing (Poland), better price signals are given; the need for re-dispatching reduces; more congestion rent is collected and the unit cost of power is reduced. The results also show that international power exchange increases between the nodal pricing area and the zonal pricing areas, especially on windy days. Moreover, the nodal pricing area has less unscheduled crossborder power flow from the zonal pricing area entering its network and collects more cross-border congestion rent