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Long-run Cost Functions for Electricity Transmission

Juan Rosellón, Ingo Vogelsang, and Hannes Weigt

Year: 2012
Volume: Volume 33
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol33-No1-5
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Abstract:
Electricity transmission has become the pivotal industry segment for electricity restructuring. Yet, little is known about the shape of transmission cost functions. Reasons for this can be a lack of consensus about the definition of transmission output and the complexitity of the relationship between optimal grid expansion and output expansion. Knowledge of transmission cost functions could help firms (Transcos) and regulators plan transmission expansion and could help design regulatory incentive mechanisms. We explore transmission cost functions when the transmission output is defined as point-to-point transactions or financial transmission right (FTR) obligations and particularly explore expansion under loop-flows. We test the behavior of FTR-based cost functions for distinct network topologies and find evidence that cost functions defined as FTR outputs are piece-wise differentiable and that they contain sections with negative marginal costs. Simulations, however, illustrate that such unusual properties do not stand in the way of applying price-cap incentive mechanisms to real-world transmission expansion. Key words: Electricity transmission, Cost function, Incentive regulation, Merchant investment, Congestion management



Improving Congestion Management: How to Facilitate the Integration of Renewable Generation in Germany

Friedrich Kunz

Year: 2013
Volume: Volume 34
Number: Number 4
DOI: 10.5547/01956574.34.4.4
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Abstract:
In this paper the German congestion management regime is analyzed and future congestion management costs are assessed given a higher share of intermittent renewable generation. In this context, cost-based re-dispatching of power plants and technical flexibility through topology optimization are considered as market-based and technical congestion management methods. To replicate the current market regime in Germany a two-step procedure is chosen consisting of a transactional spot market model and a congestion management model. This uniform pricing model is compared to a nodal pricing regime. The results show that currently congestion can mainly be managed by re-dispatching power plants and optimizing the network topology. However, congestion management costs tend to increase significantly in future years if the developments of transmission as well as generation infrastructure diverge. It is concluded that there is a need for improving the current congestion management regime to achieve an efficient long-term development of the German electricity system.



Comparison of congestion management techniques: Nodal, zonal and discriminatory pricing

Pär Holmberg and Ewa Lazarczyk

Year: 2015
Volume: Volume 36
Number: Number 2
DOI: 10.5547/01956574.36.2.7
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Abstract:
Wholesale electricity markets use different market designs to handle congestion in the transmission network. We compare nodal, zonal and discriminatory pricing in general networks with transmission constraints and loop flows. We conclude that in large games with many producers and certain information, the three market designs result in the same efficient dispatch. However, zonal pricing with counter-trading results in additional payments to producers in export-constrained nodes, which leads to inefficient investments in the long-run.



Coordinating Cross-Country Congestion Management: Evidence from Central Europe

Friedrich Kunz and Alexander Zerrahn

Year: 2016
Volume: Volume 37
Number: Sustainable Infrastructure Development and Cross-Border Coordination
DOI: https://doi.org/10.5547/01956574.37.SI3.fkun
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Abstract:
We employ a detailed two-stage model to simulate the operation of the Central Eastern European electricity market and network. Implementing different cases of coordination in congestion management between national transmission system operators, numerical results show the beneficial impact of closer cooperation. Specific steps comprise the sharing of network and dispatch information, cross-border counter-trading, and multilateral redispatch in a flow-based congestion management framework. Efficiency gains are accompanied by distributional effects. Closer economic cooperation becomes especially relevant against the background of changing spatial generation patterns, deeper international integration of national systems, and spillovers of national developments to adjacent systems.



Market-Based Redispatch May Result in Inefficient Dispatch

Veronika Grimm, Alexander Martin, Christian Sölch, Martin Weibelzahl, and Gregor Zöttl

Year: 2022
Volume: Volume 43
Number: Number 5
DOI: 10.5547/01956574.43.5.dhul
View Abstract

Abstract:
In this paper we analyze a uniform price day-ahead electricity spot market that is followed by redispatch in the case of network congestion. We assume that the transmission system operator is incentivized to minimize redispatch cost and compare cost-based redispatch (CBR ) to market-based redispatch (MBR) mechanisms. For networks with at least three nodes we show that in contrast to CBR , in the case of MBR incentives to minimize redispatch cost are in general not efficient in the context of our short-run analysis. This obtains both for pay-as-bid as well as locational marginal prices used for MBR compensation. As we demonstrate, moreover, in case of MBR the possibility of the transmission system operator to inefficiently reduce redispatch cost at the expense of decreased overall welfare can be driven both by the electricity supply side and the electricity demand side. Our results highlight a novel and important aspect regarding the design and the desirability of congestion management regimes in liberalized electricity markets.





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