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Zonal Pricing in a Deregulated Electricity Market

Mette Bjorndal and Kurt Jornsten

Year: 2001
Volume: Volume22
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol22-No1-3
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In the deregulated Norwegian electricity market a zonal transmission pricing system is used to cope with network capacity problems. In this paper we illustrate some of the problems with the zonal pricing system as it is implemented in Norway. Using small network examples we illustrate the difficulties involved in defining the zones, the redistribution effects of the surplus that a zonal pricing system has, as well as the conflicting interests concerning zone boundaries that are present among the various market participants. We also show that a zone allocation mechanism based on nodal prices does not necessarily lead to a zone system with maximal social surplus. Finally, we formulate an optimization model that when solved yields the zone system that maximizes social surplus given a pre-specification of the number of zones to be used.

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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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.

Renewable Generation and Network Congestion: an Empirical Analysis of the Italian Power Market

Faddy Ardian, Silvia Concettini, and Anna Creti

Year: 2018
Volume: Volume 39
Number: Special Issue 2
DOI: 10.5547/01956574.39.SI2.fard
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This article empirically investigates the impact of renewable production on congestion using a unique database on the Italian Power Market, where zonal pricing is implemented. We estimate two econometric models: a multinomial logit model, to assess whether renewables increase the occurrence of congestion, and a two stage least squares (2SLS) model to evaluate the impact of wind and photovoltaics on congestion costs. Our analysis suggests that larger renewable supply in importing regions decreases the probability of congestion compared to the no congestion case, while the reverse occurs when renewable production is located in an exporting region. The 2SLS estimations reveal that the same mechanisms explain the level of congestion costs. Our results also highlight that the magnitude of the congestion effects, both in terms of probability and costs, is very sensitive to the location of the historical efficient production, mainly hydro power, and to the geographical configuration of the transmission network.

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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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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