Nodal Pricing in the German Electricity Sector - A Welfare Economics Analysis, with Particular Reference to Implementing Offshore Wind Capacities

33 Pages Posted: 25 May 2008

See all articles by Florian Leuthold

Florian Leuthold

Dresden University of Technology - Faculty of Economics and Business Management

Ina Rumiantseva

affiliation not provided to SSRN

Hannes Weigt

WWZ, Wirtschaftswissenschaftliche Fakultät der Universität Basel

Till Jeske

Dresden University of Technology - Faculty of Economics and Business Management

Christian von Hirschhausen

German Institute for Economic Research (DIW Berlin) - Department of International Economics

Date Written: 2005

Abstract

This paper compares the results of different pricing systems in the German electricity sector. In particular,we compare a competitive nodal pricing approach to a cost minimization scenario under a uniform price. The model also simulates the effects of increasing offshore wind energy in the North Sea, from the current 0 GW to 8 and 13 GW, respectively. Our model of the German electricity system includes 425 lines and 310 nodes of the 380-kV and the 220-kV grid. Power flows are calculated based on the DC Load Flow Model using a slightly modified version of the traditional approach (Schweppe et al., 1988, Stigler and Todem, 2005).

Demand is proxied by linear demand functions that are regionally differentiated. Our results show that the nodal pricing regime is more efficient than uniform pricing and that offshore wind input leads to a significant welfare gain. The model also indicates that 8 GW offshore wind would be accommodated by the current network without significant investments.

Keywords: electricity, nodal pricing, welfare, Germany, wind energy

JEL Classification: L94, L51, D61

Suggested Citation

Leuthold, Florian U. and Rumiantseva, Ina and Weigt, Hannes and Jeske, Till and von Hirschhausen, Christian, Nodal Pricing in the German Electricity Sector - A Welfare Economics Analysis, with Particular Reference to Implementing Offshore Wind Capacities (2005). Available at SSRN: https://ssrn.com/abstract=1137382 or http://dx.doi.org/10.2139/ssrn.1137382

Florian U. Leuthold (Contact Author)

Dresden University of Technology - Faculty of Economics and Business Management ( email )

Mommsenstrasse 13
Dresden, D-01062
Germany

Ina Rumiantseva

affiliation not provided to SSRN ( email )

No Address Available

Hannes Weigt

WWZ, Wirtschaftswissenschaftliche Fakultät der Universität Basel ( email )

Basel, 4051
Switzerland

HOME PAGE: http://fonew.unibas.ch/

Till Jeske

Dresden University of Technology - Faculty of Economics and Business Management ( email )

Mommsenstrasse 13
Dresden, D-01062
Germany

Christian Von Hirschhausen

German Institute for Economic Research (DIW Berlin) - Department of International Economics ( email )

Mohrenstraße 58
Berlin, 10117
Germany
+49-30-89789-343 (Phone)
+49/30/897 89 -200 (Fax)

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