Zonal vs. Nodal Pricing: An Analysis of Different Pricing Rules in the German Day-Ahead Market

Johannes Kn\"orr, Martin Bichler and Teodora Dobos

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Abstract: The European electricity market is based on large pricing zones with a uniform day-ahead price. The energy transition leads to changes in supply and demand and increasing redispatch costs. In an attempt to ensure efficient market clearing and congestion management, the EU Commission has mandated the Bidding Zone Review (BZR) to reevaluate the configuration of European bidding zones. Based on a unique data set published in the context of the BZR for the target year 2025, we compare various pricing rules for the German power market. We compare market clearing and pricing for different zonal and nodal models, including their generation costs and associated redispatch costs. In numerical experiments with this dataset, the differences in the average prices in different zones are low. Congestion arises as well, but not necessarily on the cross-zonal interconnectors. The total costs across different configurations are similar and the reduction of standard deviations in prices is also small. This might be different with other load and generation scenarios, but the BZR data is important as it was created to make a decision about splits of the existing bidding zones. Nodal pricing rules lead to the lowest total cost. We also evaluate differences of nodal pricing rules with respect to the necessary uplift payments, which is relevant in the context of the current discussion on non-uniform pricing in the EU. While the study focuses on Germany, the analysis is relevant beyond and feeds into the broader discussion about pricing rules in non-convex markets.

Date: 2024-03, Revised 2024-06
New Economics Papers: this item is included in nep-ene and nep-reg
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