Hybrid Pricing in a Coupled European Power Market with More Wind Power

Endre Bjørndal (), Mette Bjørndal (), Hong Cai () and Evangelos Panos ()
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Endre Bjørndal: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway, http://www.nhh.no/Default.aspx?ID=1995
Mette Bjørndal: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway, http://www.nhh.no/Default.aspx?ID=1996
Hong Cai: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway, http://www.nhh.no/Default.aspx?ID=46528
Evangelos Panos: Energy Economics Group, Paul Scherrer Institut, Postal: Paul Scherrer Institut, Energy Economics Group, 5232 Villigen, Switzerland, https://www.psi.ch/eem/epanos
Authors registered in the RePEc Author Service: Endre Jostein Bjørndal

No 2015/28, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: In the European market, the promotion of wind power leads to more network congestion. Zonal pricing (market coupling), which does not take the physical characteristics of transmission into account, is the most commonly used method to relieve congestion in Europe. Zonal pricing fails to provide adequate locational price signals regarding the energy resource scarcity and thus creates a large amount of unscheduled cross-border flows originating from wind-generated power, making the interconnected grid less secure. Prior studies show that full nodal pricing works better in integrating wind power into the grid. In this paper we investigate the effects of applying a hybrid congestion management model, i.e. nodal pricing model for one country embedded in a zonal pricing system for the rest of the market. We test how nodal pricing works in such a hybrid context with more wind power. We find that, compared to full nodal pricing, hybrid pricing fails to fully utilize all the resources in the network and some wrong price signals might be given. However, hybrid pricing still performs better than zonal pricing. The results from the hybrid pricing model of Poland, Germany, Slovakia and the Czech Republic show that, within the area applying nodal pricing (Poland), better price signals are given; the need for re-dispatching reduces; more congestion rent is collected and the unit cost of power is reduced. The results also show that international power exchange increases between the nodal pricing area and the zonal pricing areas, especially on windy days. Moreover, the nodal pricing area has less unscheduled cross-border power flow from the zonal pricing area entering its network and collects more cross-border congestion rent.

Keywords: Congestion management; nodal pricing; zonal pricing; redispatching; renewable energy (search for similar items in EconPapers)
JEL-codes: Q00 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2015-10-28
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