Efficient pricing for European electricity networks – The theory of nodal pricing applied to feeding-in wind in Germany

Abstract

This paper applies nodal pricing as an economic approach to efficient use of electricity networks utilization for the fairly large German grid. We combine a straightforward welfare maximization with the technical specificities of electricity flows on a realistically large network. The nodal pricing model is applied in order to analyze the impact of extended German wind power production on the power grid. The paper shows that economic modeling, taking into account physical and technical constraints, makes important contributions to the assessment and optimization of system configuration and operation.