How are the long distances between renewable energy sources and load centres reflected in locational marginal prices?

Abstract

In contrast to the other Nordic countries, Finland is a uniform pricing area, which emphasizes the strength of its internal transmission grid. The geographical locations of the country’s new wind power capacity investments, namely, on the north and west coasts, are far from the largest load centres in the south and alter the power flows within Finland. The trend towards low-carbon electricity systems underlines the importance of transmission grid development, especially in the context of the uniform pricing model. To examine this issue, we divide the Finnish power market into 17 price areas. We apply a locational pricing model to determine whether the area prices diverge in future power market scenarios; this model is based on the plan of the Finnish transmission system operator regarding transmission grid investments. Our results show that price differences arise among the price areas. However, due to the new transmission capacity investments and the geographical diversification of wind power resources, this regional price variation decreases in the future scenarios.