Evolution of Fundamental Price Determination within Electricity Market Simulations

Lothar Wyrwoll, Moritz Nobis, Stephan Raths and Albert Moser
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Lothar Wyrwoll: Institute for High Voltage Equipment and Grids, Digitalization and Energy Economics (IAEW), RWTH Aachen University, 52062 Aachen, Germany
Moritz Nobis: Trianel GmbH, 52070 Aachen, Germany
Stephan Raths: Amprion GmbH, 44263 Dortmund, Germany
Albert Moser: Institute for High Voltage Equipment and Grids, Digitalization and Energy Economics (IAEW), RWTH Aachen University, 52062 Aachen, Germany

Energies, 2021, vol. 14, issue 17, 1-17

Abstract: Electricity prices are the key instrument for coordinating electricity markets. For long-term market analyses, price determination based on fundamental unit commitment simulations is required. Within the European wholesale market, electricity prices result from a market clearing, which finds a welfare-optimal price–quantity tuple considering a coupling of multiple market areas with limited transmission capacity. With increasing exchange capacities in Europe, the precise modeling of the market coupling is required. Many market simulation models use multi-stage approaches with a separation of market coupling and price determination. In this paper, we analyze a new single-stage approach that combines both steps and theoretically and empirically demonstrate its precision by a backtest. For this purpose, we compare a simulated versus a historical electricity price distribution. Moreover, we explain the necessary adjustments for future regulatory developments of the European electricity market regarding flow-based market coupling and propose a concept for the application of future regulatory developments. We demonstrate further developments using a future scenario.

Keywords: electricity price modeling; Lagrangian relaxation; market coupling; flow-based market coupling; counterintuitive flows (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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