Integration of day-ahead market and redispatch to increase cross-border exchanges in the European electricity market

Abstract

The zonal electricity market design in the Central Western European electricity market relies on redispatching generation units after market closure to manage congestion within bidding zones, while congestion between the zones is handled using flow-based market coupling. The combination of internal congestion in the meshed European network with a growing share of renewables increases the frequency and magnitude of congestion events and limits cross-border trade. The growing costs of redispatching and the divergence between grid physics and zonal markets lead to welfare losses. This paper is the first to propose an approach to improve the combined efficiency of flow-based market coupling and redispatching. We develop a novel methodology for congestion management in a zonal market with flow-based market coupling in order to increase cross-border exchanges by integrating preventive redispatch into the day-ahead market. In this approach, a set of integrated redispatch units is selected based on their high potential to reduce congestion and, as a result, free up grid capacity for cross-border exchange. We use three multi-step optimization models to demonstrate the benefits of the enhanced zonal market with integrated redispatch by comparing it to the nodal market model and a zonal market model with flow-based market coupling. The case study demonstrates the potential of the proposed methodology to significantly increase cross-border capacity and reduce the need for costly ex post redispatch. The approach is shown to be a feasible option for improving European market integration and thereby to achieve overall welfare gains.