Do minimum trading capacities for the cross-zonal exchange of electricity lead to welfare losses?

David Schönheit, Constantin Dierstein and Dominik Möst

Energy Policy, 2021, vol. 149, issue C

Abstract: Within flow-based market coupling, the EU's preferred method for calculating cross-border trading capacities, recent regulatory changes stipulate minimum trading capacities, so-called minRAMs which have to be provided to electricity markets. Effectively, high predicted flows on considered electricity grid elements have to be reduced to reserve a minimum of the elements' capacities for cross-zonal trading. This analysis investigates if the adjustments made to meet this criterion, in the form of augmented trading domains, lead to higher amounts of curative congestion management. To quantify the effect of increasing minRAMs on overall welfare, the markets and grids of Central Western Europe are analyzed during two representative weeks of 2016. The results show the increasing market coupling welfare is more than offset by rising congestion management costs, leading to net welfare losses. In the best case, the generation plus congestion management costs within Central Western Europe rise by 7.25% when increasing the minRAMs from the current 20%–45% and a minRAM of 70% is 6.28% more expensive compared to a minRAM of 20%. The analysis derives policy recommendations for implementing the minRAM stipulation, with a particular focus on a cost-minimizing selection of generation shift keys, in general as well as situation-dependent terms.

Keywords: Electricity trade; Congestion management; Flow-based market coupling; Welfare of market participants; n-1 security criterion; Generation shift keys (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:149:y:2021:i:c:s0301421520307412

DOI: 10.1016/j.enpol.2020.112030

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