Assessing Improved Price Zones in Europe: Flow-Based Market Coupling in Central Western Europe in Focus

Abstract

Theoretical papers have identified several sources of inefficiencies of flow-based market coupling (FBMC), the implicit congestion management method used to couple the Central Western European (CWE) electricity markets. These inefficiencies ultimately lead to welfare losses. In this paper, a large-scale model framework is introduced for FBMC assessments, focusing on modeling the capacity allocation and market clearing processes. The present paper completes this framework by presenting a newly developed redispatch model. Furthermore, we provide a case study assessing improved price zone configurations (PZCs) for the CWE electricity system, motivated by the debate on the currently-existing PZC. Our results show that improved PZCs-even while maintaining the number of price zones-can significantly reduce redispatch quantities and overall system costs. Moreover, making use of the insights of (Felten et al., 2021), we explain why increasing the number of price zones may not always increase welfare when using FBMC.

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

“…In this case, the internal CNE would limit cross-zonal trade, which should not occur according to the targets of Regulation (EU) 2019/943 (European Parliament 2019). In the long-and mid-term, grid expansion or a reconfiguration of bidding zones would be suitable measures to address this issue (Bertsch et al 2017;Felling and Weber 2018;Felling et al 2023). In the short term, a TSO may use remedial actions to reduce the utilization of the CNE during the capacity calculation.…”

“…In zonal markets, the delimitation of market zones is essential for efficiency and effectiveness in managing grid congestion. 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).…”