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

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.

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Energy Specializations: Electricity; Electricity – Transmission and Network Management; Electricity – Local Distribution; Electricity – Markets and Prices

JEL Codes:
L94 - Electric Utilities
D44 - Auctions
D42 - Market Structure, Pricing, and Design: Monopoly

Keywords: Congestion management, Wholesale electricity market, Transmission network, Nodal pricing, Zonal pricing, Counter-trading, Discriminatory pricing, Large game

DOI: 10.5547/01956574.36.2.7

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Published in Volume 36, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.