The Relevance of Grid Expansion under Zonal Markets

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe European electricity market design is based on zonal markets with uniform prices. Locational price signals within these zones -necessary to ensure long-term efficiency -are not provided.Specifically, if intra-zonal congestion occurs due to missing grid expansion, the market design is revealed as inherently incomplete. This might lead to severe, unwanted distortions of the electricity market, both in the short-and in the long-term. In this paper, we study these distortions with a specific focus on the impact of restricted grid expansion under zonal markets. For this, we use a long term fundamental dispatch and investment model of the European electricity system and gradually restrict the allowed expansion of the transmission grid per decade. We find that the combination of an incomplete market design and restricted grid expansion leads to a misallocation of generation capacities and the inability to transport electricity to where it is needed. Consequences are severe and lead to load curtailment of up to 2-3 %. Moreover, missing grid expansion makes it difficult and costly to reach envisaged energy targets in the power sector. Hence, we argue that in the likely event of restricted grid expansion, either administrative measures or -presumably more efficient -an adaptation of the current market design to include locational signals will become necessary.JEL classification: D47, C61, C63, Q40

Improving Flow-Based Market Coupling by Integrating Redispatch Potential―Evidence from a Large-Scale Model

“…A large body of research deals with adequate bidding zone configurations and related impacts on electricity markets and congestion management (Trepper et al 2015;Egerer et al 2016;Felling and Weber 2018;Deilen et al 2019;Felling 2019;Felling et al 2023). Further contributions extend this by studying the long-term effects and risks of changing zonal configurations (Grimm et al 2016;Bertsch et al 2017;Deilen et al 2019). Zonal markets with imperfect bidding zone configurations drive the need for redispatch measures to maintain stable grid operation.…”

A Systematic Review of European Electricity Market Design Options

“…Bertsch et al [25] argue that in a context of restricted grid expansion, the current zonal market model has shortcomings, especially in the projection of price signals. Furthermore, important scarcities in the network are not appropriately taken into account in investment decisions.…”

Renewable Energy Zones in Australia's National Electricity Market

“…Multiple jurisdictions (US, Great Britain, Europe, Australia) are experiencing sharp increases in utility-scale VRE. This is driving demand for costly transmission infrastructure, ancillary services, rising network congestion and greater Market Operator intervention (Neuhoff et al, 2013;Bird et al, 2016;Neuhoff et al, 2016;Bertsch et al, 2017;Joos and Staffell, 2018;Ambrosius et al, 2019;Wagner, 2019;Heptonstall and Gross, 2020;Simshauser and Gilmore, 2020;Pollitt and Anaya, 2021). The coordination of generation and transmission investment is therefore of rising interest (van der Weijde and Hobbs, 2012;Munoz et al, 2017;Pechan, 2017;AEMC, 2019;Ambrosius et al, 2019;Eicke et al, 2020).…”

“…But if transmission continuously follows rising numbers of distributed VRE investments in deregulated markets, the lack of choice and ongoing policy distortions may amplify illadvised plant siting decisions. And as Alayo et al (2017) explain, badly sited generators induce inefficient levels of congestion and curtailment, and give rise to negative externalities in future transmission planning (Schmidt et al, 2013;Bird et al, 2016;Alayo et al 2017;Bertsch et al, 2017;Pechan, 2017). As an absolute general conclusion, badly sited generators can be expected to harm economic welfare.…”