Is an inefficient transmission market better than none at all? On zonal and nodal pricing in electricity systems
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Joachim Bertsch: Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI), Postal: Vogelsanger Str. 321a, 50827 Koeln, Germany, http://www.ewi.uni-koeln.de
No 2015-5, EWI Working Papers from Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)
In this paper, the trade-oﬀ between ineﬃcient transmission forward markets (in nodal pricing regimes) and the ineﬃciency induced by hiding transmission constraints from the market (in zonal pricing regimes) is analyzed. First, a simple two node model formalizing the general trade-oﬀ is deveoped. Then, comparative statics are performed with a stochastic equilibrium model including more nodes, loop ﬂows and an energy and transmission forward market. Ineﬃciency in the transmission forward market is introduced via a bid-ask-spread and risk aversion of market participants. The welfare impacts for a broad range of supply, demand, grid and ineﬃciency parameters are analyzed numerically. For eﬃcient spot and forward markets, the results of the literature of nodal pricing being the eﬃcient benchmark are conﬁrmed. With ineﬃcient transmission forward markets, however, zonal pricing proves advantageous in situations with little congestion and low costs. The results imply that the trade-oﬀ between the pricing regimes should be considered carefully when deﬁning the geographical scope of bidding zones.
Keywords: electricity; market design; transmission forward markets; ineﬃcient markets (search for similar items in EconPapers)
JEL-codes: D47 L10 Q40 (search for similar items in EconPapers)
Pages: 28 pages
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Persistent link: https://EconPapers.repec.org/RePEc:ris:ewikln:2015_005
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