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One price fits all? Wind power expansion under uniform and nodal pricing in Germany

Lukas Schmidt and Jonas Zinke
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Lukas Schmidt: Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)

No 2020-6, EWI Working Papers from Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)

Abstract: This paper evaluates investment incentives for wind power under uniform and nodal pricing. An electricity system model is developed, which allows for investments into wind power while considering transmission grid constraints in detail. Targeting equally high wind capacities under nodal and uniform pricing until 2030, locations of new wind power plants shift towards sites with lower wind yield under nodal prices. The wind energy fed into the grid, though, is higher under nodal pricing since curtailment is cut to a third. Grid-optimal wind locations require higher subsidy payments but decrease yearly variable supply costs by 1.5% in 2030. However, distributional effects are an obstacle to implementing nodal pricing, where about 75% of German demand faces electricity costs increase of about 5%. For mitigating distorted investment signals of uniform pricing, implementing investment restrictions within grid expansion areas prove to be more promising than a latitude-dependent generator-component in the grid tariff design.

Keywords: Nodal Pricing; Market Design; Energy System Modeling; Renewable Energies; Market Values (search for similar items in EconPapers)
JEL-codes: C61 D47 Q42 Q48 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2020-11-13
New Economics Papers: this item is included in nep-ene and nep-reg
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