Flow-based Market Coupling Research Articles

Market zone configuration under collusive bidding among the conventional generators and renewable energy sources in the day-ahead electricity market

The European cross-zonal day-ahead (DA) electricity market is transitioning to the flow-based market coupling model for market clearing. With the increasing integration of renewable energy sources (RESs), market participants have opportunities for collusive bidding, resulting in decreased social welfare (SW). Thus, this paper is the first to propose an approach to configure the market zone (MZ) considering collusive bidding among conventional generators (CGs) and RESs in the DA market. Specifically, a bi-level model is developed to analyze collusive bidding among the CGs and RESs. Then, multi-dimensional market performance indices are used to determine the critical branches (CBs), on which the configuration of MZs is based. Finally, test 6-bus and simplified European systems are used to demonstrate the validity and merit of the proposed approach. Our simulation on the 6-bus system shows that when compared with the initial zonal market (ZM), the SW of the optimized ZM increased by 18 %, while the re-dispatch surrogate cost decreased to 0. Also, the penetration of RESs improved by 12 %, which guarantees the development of RESs.

Regulatory incentives for transmission system operators under flow-based market coupling

Flow-based market coupling is a critical element of the electricity market in Europe. Transmission System Operators determine the commercial transmission capacity that can be implicitly traded in a zonal day-ahead market. However, this entails a trade-off: higher commercial transmission capacities increase market efficiency, affecting the electricity market prices, but also increase redispatch costs, affecting the network tariff. The decision on the commercial transmission capacity should optimally balance day-ahead welfare and redispatch costs, but depends on the rules and regulated incentives enforced on the TSOs. A MinRAM criterion, i.e., imposing minima for the commercial transmission capacity, is a one-size-fits-all policy without variation in time and space that unlikely leads to optimal transmission capacity allocation and is hard to tune because regulators have incomplete information. Incentive regulation is an alternative policy instrument promoting welfare-maximizing commercial transmission capacities, robust against information asymmetry. We provide a set of mathematical conditions to properly design an incentive scheme that rewards price convergence and penalizes excessive redispatch costs. Therefore, this paper serves as a stepping stone towards tapping the full potential of cross-border trade in zonal markets for policymakers, regulators, TSOs and market participants.

Uncertainty-Aware Capacity Allocation in Flow-Based Market Coupling

The effective allocation of cross-border trading capacities is one of the central challenges for the implementation of a pan-European internal energy market. In contrast to traditional power flow-ignorant methods like net transfer capacities (NTC), flow-based market coupling (FBMC) has been shown to increase price convergence between market areas, while improving congestion management effectiveness. However, explicitly analysing FBMC for a future power system with a very high share of intermittent renewable generation is often overlooked in the current literature. This paper provides a comprehensive summary on the technical specification of the FBMC process and FBMC modeling methods. It discusses implications of policy considerations and explicitly discusses the impact of high-shares of intermittent generation on FBMC performance. Further, we propose probabilistic security margins compatible with the current FBMC implementation to better account for renewable uncertainty in FBMC modeling. We conduct numerical experiments on the IEEE 118 bus test system to showcase the proposed model formulations and our data and implementation is published open source.

Assessing Improved Price Zones in Europe: Flow-Based Market Coupling in Central Western Europe in Focus

Theoretical papers have identified several sources of inefficiencies of flow-based market coupling (FBMC), the implicit congestion management method used to couple the Central Western European (CWE) electricity markets. These inefficiencies ultimately lead to welfare losses. In this paper, a large-scale model framework is introduced for FBMC assessments, focusing on modeling the capacity allocation and market clearing processes. The present paper completes this framework by presenting a newly developed redispatch model. Furthermore, we provide a case study assessing improved price zone configurations (PZCs) for the CWE electricity system, motivated by the debate on the currently-existing PZC. Our results show that improved PZCs—even while maintaining the number of price zones—can significantly reduce redispatch quantities and overall system costs. Moreover, making use of the insights of (Felten et al., 2021), we explain why increasing the number of price zones may not always increase welfare when using FBMC.

Erratum to “Toward a fundamental understanding of flow-based market coupling for cross-border electricity trading” [ADAPEN 2 (2021) 100027

Erratum to “Toward a fundamental understanding of flow-based market coupling for cross-border electricity trading” [ADAPEN 2 (2021) 100027

The effect of flow-based market coupling on cross-border exchange volumes and price convergence in Central Western European electricity markets

Since 2015 available cross-border transmission capacity is determined using flow-based market coupling (FBMC) in the day-ahead electricity markets of Central Western Europe. This paper empirically estimates the effect of introducing FBMC on day-ahead electricity price convergence and cross-border exchange volumes. In the month following the introduction of FBMC, hourly cross-border exchange volumes increased by 1,700 MWh/h, while prices between countries converged by 10.4 €/MWh. Since then, observed cross-border exchange volumes decreased to 400 MWh/h below their levels before the introduction of FBMC by the end of 2017. However, when controlling for changing market conditions in the years following the introduction of FBMC, we find that FBMC still has a persistent positive effect of around 1,150 MWh/h on hourly cross-border exchange volumes and of 2 €/MWh on price convergence. Finally, we provide suggestive evidence that decreased commercial transmission capacity on critical branches might have contributed to the decline of the benefits over time. This paper is useful for policymakers, regulators, TSOs, and other stakeholders in light of the extension of FBMC to other regions as it is the target methodology for coupling market zones in the European single electricity market.

Supervised learning-assisted modeling of flow-based domains in European resource adequacy assessments

• This paper aims to enhance the modeling of cross-border energy exchanges in adequacy study. • Novel supervised learning-based models in single- and two-step set-ups are proposed. • Accuracy, scalability, and computational complexity of adequacy study are improved. • It can have high implication for policy makers and be of a great interest of academics. To represent the cross-border exchange capacities defined by the flow-based approach in the European resource adequacy assessments, transmission system operators currently employ a data-driven methodology that consists of sequential clustering and correlation steps. This methodology entails assumptions and simplifications within both clustering and correlation analyses that may lead to an erroneous representation of import–export capacities in the subsequent adequacy assessments. While the first stage of this methodology can be improved by leveraging a clustering technique tailored to adequacy assessments, the correlation step presents a poor performance in terms of accuracy and scalability. To address the latter challenges, this paper proposes a supervised learning-based model that can enhance the mapping between several relevant explanatory variables and the pre-clustered flow-based domains, leading to a more accurate representation of the flow-based domains in adequacy assessments. Furthermore, the current paper leverages supervised learning to develop a single-step approach that directly maps the selected explanatory variables to the flow-based domains using the K-Nearest Neighbors algorithm, eliminating the clustering step. This circumvents inaccuracies introduced by the significant intra-cluster discrepancies due to numerous shapes and forms of the flow-based domains and enables an enhanced modeling of the flow-based domains in adequacy assessments. In an extensive case study, we demonstrate that the proposed single-step model can significantly improve the accuracy of adequacy assessments, compared to the best-in-class result obtained by the two-step set-up. Moreover, the proposed single-step model involves no hyper-parameters, eliminates the computational complexity of the two-step set-up, and efficiently upscales to integrate the new zones joining to the flow-based market coupling.

The capacity allocation method of European electricity market and its implications for China

Nowadays, the transaction scale of the cross-provincial electricity market in China has increased, and the problem of transmission capacity allocation attracts the government’s attention. During the development of the European unified electricity market, capacity allocation methods based on bidding zones such as Available Transfer Capacity (ATC) and Flow-Based Market Coupling (FBMC) have realized regional market coupling and improved grid utilization. This article intends to analyze the allocation methods of transmission capacity in the European electricity market, focusing on the comparison between the ATC and the FMBC, considering the actual background of the Chinese electricity market, especially the differences between the Chinese market and the European market in the grid structure and marketization process, it is more suitable to adopt ATC in China and it makes the suggestion for the application of the capacity allocation method. Besides, the idea of bidding zone simplification is also worth learning. It is also recommended that provincial institutions exchange data related to capacity allocation to coordinate the calculation of trading domains.

An analysis of zonal electricity pricing from a long-term perspective

In an era of energy transition, it is crucial to ensure that the design of the short-term electricity market provides sufficient cash flows to producers so as to allow the investment of the right technology at the right location. In this paper, we revisit the question of capacity allocation in zonal markets from a long-term perspective. We model the capacity expansion problem in zonal markets in which inter-zonal transmission capacity allocation is organized through flow-based market coupling, which is an approximation of power flow equations in aggregate networks that is employed in European market design. We demonstrate that the classical result of equivalence between centralized and decentralized formulations in transmission-constrained markets ceases to hold in this case. We propose a model of the decentralized capacity expansion problem with flow-based market coupling as a generalized Nash equilibrium that we formulate as a linear complementarity problem. We then perform simulations of the capacity expansion problem with nodal pricing and three variations of zonal pricing on a realistic instance of the Central Western European network and comment on the impacts of flow-based market coupling on investment.

Electricity market integration and impact of renewable energy sources in the Central Western Europe region: Evolution since the implementation of the Flow-Based Market Coupling mechanism

The wholesale electricity markets in Europe are undergoing major changes. The pursuit of a major integration for the development of the Internal Energy market is the main driver of this transformation. In this context, the Central Western Europe region implemented for the first time in May 2015 a new and complex mechanism to manage cross-border capacity allocation in the frame of the day-ahead market: the Flow-Based Market Coupling. This paper is the first to consider recent data of the electricity market to develop a predictive model for identifying convergence and congestion situations in the Central Western Europe region. The occurrence of convergence or not is considered as a binary outcome to build a probit model. This model combines meaningful information about the electricity market features of the interconnected countries between 2016 and 2018, including for the first time data on renewable energy sources forecasts for this type of studies. The results of this study identify the major role that Germany and France play in the integration process. The estimated coefficients of the model show that the strong development of solar and wind power in Germany appears as an important driver of congestion in the Central Western Europe. In order to improve the benefits of market integration and the further development of the Internal Energy market, the results of this study encourage policy-makers to promote cooperation and coordination among all the actors involved in the electricity market and to pursue the expansion of the power grid to minimize the occurrence of congestion situations.

The Effect of Flow-Based Market Coupling on Cross-Border Exchange Volumes and Price Convergence in Central-Western European Electricity Markets

The Effect of Flow-Based Market Coupling on Cross-Border Exchange Volumes and Price Convergence in Central-Western European Electricity Markets

Improved selection of critical network elements for flow-based market coupling based on congestion patterns

European electricity markets are zonal markets, a set-up that naturally entails an imperfect representation of intra-zonal congestion patterns that may limit cross-border trade. The method of flow-based market coupling aims to reflect limitations to cross-border trade by incorporating intra- and interzonal grid elements within the setting of zonal pricing through monitoring the flows on these critical network elements caused by inter-zonal trade. A major challenge for grid operators is the selection of critical network elements, essentially deciding which grid elements send congestion signals and trade limitations to the markets. Our main research question is: Can insights on hypothetically re-configured market zones help to improve the selection of critical network elements and lead to cost reductions without effectively changing the market zone setting? Using a flow-based market coupling optimization model based on a 3-zone test network, we propose a hypothetical nodal price-based market zone re-configuration to identify congestion signals and derive an improved set of critical network elements. We find that around 90% of the cost reductions from this market zone re-configuration can be maintained when the critical network elements, obtained from the re-configured market zones, are used in the original 3-zone setting. This is a strong indication that, both in reality as well as model-based research of flow-based market coupling, the selection of critical network elements should be based on expected congestion patterns. The proposed approach can constitute a helpful addition to static and assumption-based selection criteria for critical network elements that are currently used by European grid operators.

Evolution of Fundamental Price Determination within Electricity Market Simulations

Electricity prices are the key instrument for coordinating electricity markets. For long-term market analyses, price determination based on fundamental unit commitment simulations is required. Within the European wholesale market, electricity prices result from a market clearing, which finds a welfare-optimal price–quantity tuple considering a coupling of multiple market areas with limited transmission capacity. With increasing exchange capacities in Europe, the precise modeling of the market coupling is required. Many market simulation models use multi-stage approaches with a separation of market coupling and price determination. In this paper, we analyze a new single-stage approach that combines both steps and theoretically and empirically demonstrate its precision by a backtest. For this purpose, we compare a simulated versus a historical electricity price distribution. Moreover, we explain the necessary adjustments for future regulatory developments of the European electricity market regarding flow-based market coupling and propose a concept for the application of future regulatory developments. We demonstrate further developments using a future scenario.

Enhanced integration of flow-based market coupling in short-term adequacy assessment

The resource adequacy of the interconnected Central Western Europe (CWE) electricity system is assessed considering the cross-border exchange capacities defined through the Flow-Based (FB) domains. Integration of FB domains into adequacy assessments poses several challenges since the FB domains depend on factors which are not known over the horizon of adequacy study. Computing hourly FB domains for each generated scenario of adequacy study, firstly, requires adopting assumptions on those unknown parameters (that may not fully match with the reality). Secondly, it noticeably increases the computational complexity of the study. The above challenges can, however, be circumvented by the data-driven alternatives. This paper presents a novel clustering technique for FB domains, which is specifically tailored for adequacy assessments. In contrast to the classical approach employed by the CWE Transmission System Operators (TSOs), which clusters the FB domains based on their overall geometrical resemblance, the proposed technique relies on the maximum and minimum zonal balances allowed by the FB domains, which are decisive factors in the CWE resource adequacy assessments. Indeed, during scarcity moments, the zonal net positions (balances) tend to reach their extreme values to reduce the costs of energy not served. The proposed goal-oriented clustering technique is examined against the classical clustering methodology employed by the CWE TSOs. The conducted simulations demonstrate that the proposed technique considerably (by a factor of over 5.5) improves the accuracy of the CWE adequacy assessments while being scalable with the future evolution of the Flow-based Market Coupling (FBMC). As such, it has direct implications for the adequacy assessment considering the FB domains.

Impact of Flow Based Market Coupling on the European Electricity Markets

Flow Based Market Coupling is the target model for determining exchange capacities in the internal European Electricity Market. It has been in operation in Central Western Europe since 2015 and is scheduled to be extended to the wider Core region in the near future. Exchange capacities have a significant impact on market prices, exchanges and the energy mix, thus also determining the CO{}_{2} footprint of electricity generation in the system. Stakeholders therefore need to develop an understanding for the impact of Flow Based Market Coupling and the parameter choice, like the minimum exchange capacities introduced in 2020, on the market outcome. This article presents a framework to model Flow Based Market Coupling and analyse the impact of different levels of regulatory induced minimum trading capacities as well as the effect of the extension towards the Core region. Electricity prices, exchange positions and the number and nature of binding constraints in the market results under different market coupling scenarios are investigated. The results show that increased level of minimum trading capacities in CWE market coupling decrease the German net export position by up to 7 TW h or 23%, while French exports increase by up to 10 TW h or 9%. The different transfer capacity in the scenarios induce a price difference of up to 13%. Increased exchange capacities allow for more base load generation with the corresponding effects for the CO{}_{2} emissions of the system. The nature of coupling constraints is highly dynamic and dependent on the system state, which makes the suitability of static NTC values in energy system scenarios questionable.

Toward a fundamental understanding of flow-based market coupling for cross-border electricity trading

• Provision of a guide to the main steps and parameters of flow-based market coupling. • Learning goals to help readers understand actions by transmission system operators. • Provision of an open-access model (code and data) based on free-to-use software. • Case studies and sensitivity analyses based on a modified 118-bus IEEE network. • Quantifying effects of generation shift keys, critical lines and security margins. Trading electricity across market zones furthers competitive power prices, security of supply and the integration of renewable energy. In the European Union, flow-based market coupling is the target model to compute correct trading capacities between markets, while approximating physical grid constraints. The methodology relies on predictive, carefully designed parameters to maximize trading opportunities, while keeping congestion management at acceptable levels. This paper explains the fundamentals of flow-based market coupling. It provides an open-access model based on a test network and its data. By providing a guide to the theory and conducting several case studies, the functioning and effects of the most influential parameters are demonstrated. Innovative aspects of this paper are its illustrative nature and its answer to the following research questions: (1) What is the effect of (a) generation shift keys and (b) threshold choice on the selection of critical network elements? (2) What is the effect of (a) generation shift keys, (b) selected critical network elements and (c) security margins on market coupling and congestion management results? It also addresses the effect of higher shares of renewable energy and minimum trading capacities on flow-based market coupling. This analysis shows that (1) the effects of flow reliability margins and selected critical network elements dominate the effect of generation shift keys on flow-based market coupling domains, (2) power systems with an increasing share of renewable energy may necessitate re-adjusted parameters and (3) minimum trading capacities can be guaranteed by redispatch or altering the base case.

Modeling zonal exchanges and nodal system representation in multi-zonal spot electricity markets

A novel model for the solution of the flow-based market coupling problem in multi-zonal spot electricity markets with zonal exchanges is presented in this paper. The problem considers a hybrid network configuration, i.e. a zonal market layer with zonal portfolio offers / bids submitted by the participants and zonal market clearing prices, and a nodal physical layer with nodal representation of the transmission system flows and relevant constraints. The model provides the optimal supply / demand cleared quantities and zonal exchanges, endogenously bounded by grid physical constraints, e.g. branch physical limits. The model retains the intuitiveness of the zonal exchanges, namely exchanges are cleared only from low-price zones to high-price zones. The model exhibits a dynamic/optimal allocation of zonal to nodal volumes. This market setup is fully compliant with the current market design in Europe, where portfolio participation in spot market with zonal prices, intuitive exchanges and with nodal flow-based constraints is the preferred scheme of the European Commission based on Regulation 2015/1222. The model is compared in terms of overall social welfare, pricing and cleared exchanges with the currently applied approach in Europe plus a “tuning” model for the simulation of redispatching to avoid congestion in physical branches.

The flow-based market coupling domain - Why we can't get it right

Significant welfare gains can be achieved by interlinking electric power systems. A major improvement in this regard has been the implementation of flow-based market coupling (FBMC) in Central Western Europe [Réseau de transportd'électricité (RTE) et al., 2015]. However, recent assessments [Entso-E, 2018] have shown that FBMC is not yet fully understood. We contrast the FBMC domain with the feasible regions in a nodal market design based on a stylized example. Our analysis reveals the essential elements of FBMC, including its positive features. We also show that certain FBMC approximations will always affect welfare to a certain extent.

Development and Impact of Flow-Based Methodology in Core Region

The Core Flow-Based Market Coupling Project (Core FB MC) focuses on the development and implementation of the day-ahead market activities in the Core Capacity Calculation Region (Core CCR) within the Single Day-Ahead Coupling (SDAC). The Transmission System Operators (TSO) and Nominated Electricity Market Operators (NEMO) of the Core CCR aim to introduce FB MC at the regional level and ultimately, to facilitate the merger of regional markets and the creation of a fully integrated European Internal Energy Market.
 Flow-Based Market is currently deployed within the Single Day-Ahead Coupling across Central Western Europe (CWE) covering Austria, Belgium, France, Germany, Luxemburg and the Netherlands. Within the Core Flow-Based Market Coupling project, all borders of the Core CCR will be coupled based on the Flow-Based capacity calculation methodology developed in the framework of the Capacity Allocation and Congestion Management (CACM) Regulation. The Core CCR consists of the bidding zone borders between the following EU Member States` bidding zones: Austria, Belgium, Croatia, Czech Republic, France, Germany, Hungary, Luxembourg, the Netherlands, Poland, Romania, Slovakia and Slovenia.
 The Flow-Based Methodology is a methodology in which physical network constraints are obtained based on the available constraints on the critical elements of the network (branch) and the power transmission allocation factors that are defined for each critical branch and each zone (Bidding Zone) within Core CCR. These factors describe how the position of each bidding zone changes when the energy flow in the critical branch changes. The computer algorithm then seeks an optimal exchange of energy between the bidding zones.
 Compared to the existing Net Transmission Capacity (NTC) methodology, the FB methodology takes into account multiple parameters and optimization conditions and therefore better reflects the actual circumstances in the network. The methodology for calculating the flows of power derives from the Commission Regulation (EU) 2015/1222 on the Establishment of CACM regulation (Article 20) and represents an important part of the European Target Model. The methodology contributes to reducing the price differences between national electricity markets, which leads to more stable prices, and increases the social benefits of the involved countries.
 This paper will provide historical overview of the Core FB MC project, which is based on the decision of the Agency for the Cooperation of Energy Regulators (ACER) on November 17th, 2016. It will further on provide a presentation of all the working groups and their tasks within the FB MC project, high-level architecture and information flows, a detailed description of test processes divided into separate test
 Given that the project is still in the implementation phase, and that Croatia is part of it since 2016, article will look at the local perspective and expectation from the moment of realization of the project, but will as well give an overall progress picture of the energy market and energy trading for the entire Core region.

Do minimum trading capacities for the cross-zonal exchange of electricity lead to welfare losses?

Within flow-based market coupling, the EU's preferred method for calculating cross-border trading capacities, recent regulatory changes stipulate minimum trading capacities, so-called minRAMs which have to be provided to electricity markets. Effectively, high predicted flows on considered electricity grid elements have to be reduced to reserve a minimum of the elements' capacities for cross-zonal trading. This analysis investigates if the adjustments made to meet this criterion, in the form of augmented trading domains, lead to higher amounts of curative congestion management. To quantify the effect of increasing minRAMs on overall welfare, the markets and grids of Central Western Europe are analyzed during two representative weeks of 2016. The results show the increasing market coupling welfare is more than offset by rising congestion management costs, leading to net welfare losses. In the best case, the generation plus congestion management costs within Central Western Europe rise by 7.25% when increasing the minRAMs from the current 20%–45% and a minRAM of 70% is 6.28% more expensive compared to a minRAM of 20%. The analysis derives policy recommendations for implementing the minRAM stipulation, with a particular focus on a cost-minimizing selection of generation shift keys, in general as well as situation-dependent terms.