A clustering approach to the definition of robust, operational and market efficient delineations for European bidding zones

Abstract

In this work, we address the automated design of alternative bidding zones for Continental Europe. We base our approach on the application of clustering methods to series of locational marginal prices. These methods are adapted by using a redispatch effort index and spatial constraints in the form of geographical distances and bus adjacency. An evaluation grid that reflects the multidimensional impacts of a bidding zone revision is also provided, addressing congestion management but also price formation and the general distribution of costs and revenues between main system actors. Based on a large-scale static grid model of the European power system, we design nine illustrative candidate zone delineations that are illustrative of current academic and institutional discussions on zone revision. A multi-horizon assessment is also provided in relation to representative 2025, 2030 and 2040 dispatch scenarios. It is shown that while the considered alternative zone configurations can bring significant gains regarding redispatching efforts in the short run, these benefits are not robust in 2030 and 2040 scenarios. Medium to long-term projections also show that an increase of the number of zones is likely to significantly affect price formation dynamics and lead to structural economic transfers that are to the disadvantage of consumers.