Abstract
In Europe, the ongoing renewable expansion and delays in the planned grid extension have intensified the discussion about an adequate electricity market design. Against this background, we jointly apply an agent-based electricity market model and an optimal power flow model to investigate the long-term impacts of splitting the German market area into two price zones. Our approach allows capturing long-term investment and short-term market behavior under imperfect information. We find strong impacts of a German market splitting on electricity prices, expansion planning of generators and required congestion management. While the congestion volumes decrease significantly under a market split in the short term, the optimal zonal configuration for 2020 becomes outdated over time due to dynamic effects like grid extension, renewable expansion and new power plant investments. Policymakers and regulators should therefore regularly re-assess bidding zone configurations. Yet, this stands in contrast to the major objective of price zones to create stable locational investment incentives.
Highlights
Driven by the massive expansion of renewable electricity generation as well as political phase-out decisions of technologies such as nuclear or coal-fired generation, the design of the European electricity markets is in a state of constant evolution
We assume a delay of five years for the different high-voltage direct current (HVDC) projects compared to the official plans
Using an innovative modeling framework consisting of an agent-based electricity market simulation model (PowerACE) and an optimal power flow model (ELMOD) we investigated the long-term impacts of splitting the German price zone in a multiperiod setting with different decision levels
Summary
Driven by the massive expansion of renewable electricity generation as well as political phase-out decisions of technologies such as nuclear or coal-fired generation, the design of the European electricity markets is in a state of constant evolution. An aspect of particular relevance in this respect is the design of the day-ahead markets and the closely related congestion management. Following the concept of zonal pricing, the day-ahead market clearing of the interconnected European electricity system is carried out without considering any grid constraints within a price zone, which in most cases corresponds to a whole country. Large generation capacities, mainly located in Southern Germany, are dropping out of the market until 2022 due to the political decision of phasing-out nuclear power. The German Kommission fur Wachstum, Strukturwandel und Beschaftigung (commonly called Kohlekommission) has recently agreed on a phase-out of coal-fired generation until 2038, which will affect regions in the West (Rhineland) and East (Lusatia, Central German district) of the country (Bundesministerium fur Wirtschaft und Energie, 2019)
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