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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.csol
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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.



Assessing Improved Price Zones in Europe: Flow-Based Market Coupling in Central Western Europe in Focus

Tim Felling, Björn Felten, Paul Osinski, and Christoph Weber

Year: 2023
Volume: Volume 44
Number: Number 6
DOI: 10.5547/01956574.44.6.tfel
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Abstract:
Theoretical papers have identified several sources of inefficiencies of flow-based market coupling (FBMC), the implicit congestion management method used to couple the Central Western European (CWE) electricity markets. These inefficiencies ultimately lead to welfare losses. In this paper, a large-scale model framework is introduced for FBMC assessments, focusing on modeling the capacity allocation and market clearing processes. The present paper completes this framework by presenting a newly developed redispatch model. Furthermore, we provide a case study assessing improved price zone configurations (PZCs) for the CWE electricity system, motivated by the debate on the currently-existing PZC. Our results show that improved PZCs—even while maintaining the number of price zones—can significantly reduce redispatch quantities and overall system costs. Moreover, making use of the insights of (Felten et al., 2021), we explain why increasing the number of price zones may not always increase welfare when using FBMC.





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