An analysis of zonal electricity pricing from a long-term perspective

Quentin Lété, Yves Smeers and Anthony Papavasiliou

Energy Economics, 2022, vol. 107, issue C

Abstract: In an era of energy transition, it is crucial to ensure that the design of the short-term electricity market provides sufficient cash flows to producers so as to allow the investment of the right technology at the right location. In this paper, we revisit the question of capacity allocation in zonal markets from a long-term perspective. We model the capacity expansion problem in zonal markets in which inter-zonal transmission capacity allocation is organized through flow-based market coupling, which is an approximation of power flow equations in aggregate networks that is employed in European market design. We demonstrate that the classical result of equivalence between centralized and decentralized formulations in transmission-constrained markets ceases to hold in this case. We propose a model of the decentralized capacity expansion problem with flow-based market coupling as a generalized Nash equilibrium that we formulate as a linear complementarity problem. We then perform simulations of the capacity expansion problem with nodal pricing and three variations of zonal pricing on a realistic instance of the Central Western European network and comment on the impacts of flow-based market coupling on investment.

Keywords: Zonal electricity markets; Transmission capacity allocation; Capacity expansion (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988322000366
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:107:y:2022:i:c:s0140988322000366

DOI: 10.1016/j.eneco.2022.105853

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().