Consistent and Robust Delimitation of Price Zones Under Uncertainty with an Application to Central Western Europe
HEMF Working Paper No.06/2017
40 Pages Posted: 6 Jul 2017 Last revised: 8 Jul 2017
Date Written: June 30, 2017
New and alternative delimitations of price zones for Central Western Europe (CWE) might constitute a mid-term solution to cope with the increasing congestion in the electricity transmission grids. The significantly growing infeed from renewable energy sources puts more and more pressure on the grid and emphasizes the need for improved congestion management. Thus, a new delimitation of price zones is frequently considered in current discussions and research. The present paper applies a novel hierarchical cluster algorithm that clusters locational marginal prices and weights nodes depending on their demand- and supply-situation to identify possible new price zone configurations. The algorithm is applied in a scenario analysis of six scenarios reflecting main drivers that influence the future development of European Electricity markets in line with the trilemma of energy policy targets. Robustness of the new configuration is an important criterion for price zone configurations according to the European Guideline on Capacity Allocation and Congestion Management (CACM). Therefore, a robust price zone configuration is computed taking into account all the six individual scenarios. Results show that shape, size and price variations of price zones on the one hand strongly depend on the individual scenario. On the other hand, the identified robust configuration is shown to outperform other configurations, particularly also the current price zone configuration in CWE.
Keywords: Cluster Analysis, Electricity Market Design, Nodal Pricing, Congestion Management, Energy Markets and Regulation, Bidding zones, Price Zone Configuration, Bidding Zone Configuration
JEL Classification: C38, C61, D47, L51, Q41, Q48
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