Hybrid Pricing in a Coupled European Power Market with More Wind Power

31 Pages Posted: 29 Oct 2015

See all articles by Endre Bjorndal

Endre Bjorndal

Norwegian School of Economics (NHH) - Department of Business and Management Science

Mette Helene Bjorndal

Norwegian School of Economics (NHH) - Department of Business and Management Science

Hong Cai

Norwegian School of Economics (NHH) - Department of Business and Management Science

Evangelos Panos

Paul Scherrer Institute (PSI) - Energy Economics Group

Date Written: October 28, 2015

Abstract

In the European market, the promotion of wind power leads to more network congestion. Zonal pricing (market coupling), which does not take the physical characteristics of transmission into account, is the most commonly used method to relieve congestion in Europe. Zonal pricing fails to provide adequate locational price signals regarding the energy resource scarcity and thus creates a large amount of unscheduled cross-border flows originating from wind-generated power, making the interconnected grid less secure. Prior studies show that full nodal pricing works better in integrating wind power into the grid. In this paper we investigate the effects of applying a hybrid congestion management model, i.e. nodal pricing model for one country embedded in a zonal pricing system for the rest of the market. We test how nodal pricing works in such a hybrid context with more wind power. We find that, compared to full nodal pricing, hybrid pricing fails to fully utilize all the resources in the network and some wrong price signals might be given. However, hybrid pricing still performs better than zonal pricing. The results from the hybrid pricing model of Poland, Germany, Slovakia and the Czech Republic show that, within the area applying nodal pricing (Poland), better price signals are given; the need for re-dispatching reduces; more congestion rent is collected and the unit cost of power is reduced. The results also show that international power exchange increases between the nodal pricing area and the zonal pricing areas, especially on windy days. Moreover, the nodal pricing area has less unscheduled cross-border power flow from the zonal pricing area entering its network and collects more cross-border congestion rent.

Keywords: Congestion management, nodal pricing, zonal pricing, redispatching, renewable energy

JEL Classification: Q00

Suggested Citation

Bjorndal, Endre and Bjorndal, Mette Helene and Cai, Hong and Panos, Evangelos, Hybrid Pricing in a Coupled European Power Market with More Wind Power (October 28, 2015). NHH Dept. of Business and Management Science Discussion Paper No. 2015/28. Available at SSRN: https://ssrn.com/abstract=2682506 or http://dx.doi.org/10.2139/ssrn.2682506

Endre Bjorndal

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Mette Helene Bjorndal

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Hong Cai (Contact Author)

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Evangelos Panos

Paul Scherrer Institute (PSI) - Energy Economics Group ( email )

5232 Villigen PSI
Switzerland

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
77
Abstract Views
613
rank
326,691
PlumX Metrics