Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7399077 | Energy Policy | 2016 | 15 Pages |
Abstract
In liberalized electricity markets we observe different approaches to congestion management. While nodal pricing is implemented in Canada and some markets in the United States, European markets are split up into a limited number of price zones with uniform prices, in order to at least partially realize the benefits of regional price differentiation. Zonal boundaries often coincide with national borders, but some countries are also split into multiple zones. In this paper we shed light on possible negative welfare effects of market splitting that arise in a model where investment incentives in new generation capacity are taken into account if zones are misspecified. We show that standard approaches to configure price zones - on the basis of projected nodal price differences or congested transmission capacity - may fail to suggest reasonable zone specifications. Also an adjustment of Available Transfer Capacities (ATCs) between zones or a switch to flow-based market splitting does not ensure positive welfare effects. Our analysis suggests that a careful and detailed evaluation of the system is needed to ensure a reasonable zone configuration.
Related Topics
Physical Sciences and Engineering
Energy
Energy Engineering and Power Technology
Authors
Veronika Grimm, Alexander Martin, Martin Weibelzahl, Gregor Zöttl,