Determination of alternative bidding areas based on a full nodal pricing approach

Abstract

Congestion management and capacity allocation have turned out to be some of the major challenges in the European electricity system. Although it is known that nodal prices, or often called locational marginal prices, would, in theory and from a static efficiency point of view, lead to an optimal congestion management, due to various reasons (e.g. market power and liquidity) this is no feasible solution in the mid-term; therefore, adjusting the current shape of bidding areas based on the physical transmission constraints could provide a preferable interim solution. Consequently, an algorithm to determine bidding areas based on a full nodal pricing simulation is developed and applied to a model of the European electricity system. The results show that the developed method is capable of investigating large power systems including impacts from uncertainties like grid extension or future development of Renewable Energies Sources (RES).