Flow-Based Market Coupling Revised - Part I: Analyses of Small- and Large-Scale Systems

Abstract

By interlinking power systems, significant welfare gains can be achieved. However, different approaches for coupling electricity markets exist. A recent development in this field is the implementation of flow-based market coupling (FBMC) in Central Western Europe (CWE). Indeed, FBMC has proven to be advantageous compared to the former situation in CWE Amprion et al. 2014 and to be operationally manageable under current market conditions. However, analyses of possible future adjustments of market areas ("bidding zones") have shown problems in assessing and even understanding FBMC Entso-E 2018. Therefore, Part I of this two-part paper contributes to resolving these problems. First, it presents key issues and effects of all essential FBMC elements. This is done drawing the feasible regions of the FBMC constraints – a method that is well-known from optimization theory. However, in the way it is applied to FBMC it is novel and offers significant insights. These insights are presented on the basis of a stylized yet fully transparent and reproducible example. Thereby, we improve the understanding of benefits and shortcomings of FBMC. Second, we introduce a large-scale model framework capable of assessing FBMC as implemented in CWE. This enables us to assess real-world power systems also when undergoing structural changes. This lays the foundation for the case study presented in Part II.

Keywords: Flow-based market coupling; Zonal pricing; Nodal pricing; Feasible regions; Flow-based domains; Electricity market modeling; Grid modeling

JEL Classification: C61, C80, D61, Q41, Q43, Q48