Nodal Pricing of the European Electricity Grid - A Welfare Economic Analysis for Feeding-In Offshore Wind Electricity

Abstract

In this paper, we apply the theory of nodal pricing to a particularly urgent issue of energy and environmental economics: the integration of wind power in electricity systems. We use a nodal pricing model to analyze the impact of German wind power production on the North Western European power grid. Especially the Benelux countries are supposed to suffer from congestion due to unintended, yet inevitable cross-border power flows. The paper shows that economic modelling, taking into account physical and technical constraints, makes important contributions to the assessment and optimization of system configuration and operation.

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

JEL Classification: L94, L51, D61