Zonal Pricing Research Articles

Heat Supply in Russia: Current Situation and Problems of Investment Development

ABSTRACT This article gives a qualitative and quantitative characterization of the current state of Russia’s heat supply system and analyzes its heat networks, pricing system, three-tiered management structure, and production capacities (the share of cogeneration and the structure of the industry according to type of heat producer). Two investment mechanisms to modernize the centralized heat supply systems are considered: concession agreements and the introduction of price zones based on the “alternative boiler plant” method. The article considers how the production and consumption of thermal energy can be balanced in the system and includes an estimate of the industry’s fuel consumption and financial balance. Changes in the patterns of heat consumption and production within the district heating system are presented. The article concludes by considering the set of problems that must be solved to avoid serious problems in the future.

The Alternative Boiler Plant as a Mechanism for Solving Existing Heat Supply Problems

ABSTRACT As part of the long tradition of EKO, we try to supplement the work of academic researchers with that of experts working in the field. This set of articles concerns the challenges facing the Russian heat supply system. We have asked S.V. Bukharov, a representative of the energy sector, to take part in the discussion. S.V. Bukharov has more than 15 years of experience in the financial and economic management of the energy sector (including with the Novosibirskenergo group, OJSC TGK-13, and the Association NP Market Council et al.). As a consultant, S.V. Bukharov has helped prepare materials for an appeal to the Russian government to classify the urban-type settlement of Linyovo (Iskitimsky District, Novosibirsk Oblast) as a heat supply price zone. This article describes the possible effects for the industry and consumers resulting from the transition to the “alternative boiler plant” model, including a description of the mechanisms for equalizing the price effects for consumers after the transition. S.V. Bukharov concludes by providing an assessment of the applicability of the new alternative boiler plant method.

Assessing the regional redistributive effect of renewable power production through a spot market algorithm simulator: The case of Italy

In order to study the sensitivity of market equilibria to changes in production from renewable units at different locations, we developed an algorithm that simulates the hourly equilibrium (price–quantity) of the Italian day-ahead market. Our analysis shows that, when power markets are organised on zonal basis with locational price signals and final buyers pay a unique wholesale price, a larger renewable production decreases the average zonal prices, but the distribution of benefits largely depends on power plants’ localisation. We study the impact of such expansion on network congestion occurrence, supply–demand zonal balance and zonal generation mix; we calculate the zonal substitution effects between renewable and non-renewable technologies, and within renewable technologies. We finally discuss the possible implications on national and local market power. Our paper analyses the multifaceted consequences of energy transition policies based on boosting renewable production and it highlights the importance of location in such expansion; in zonal markets, this aspect in crucial to get price decrease.

Geographic price granularity and investments in wind power: Evidence from a Swedish electricity market splitting reform

I evaluate the effect of the 2011 Swedish electricity market splitting reform on the allocation of wind power, exploiting a unique data set of all Swedish applications for wind power since 2003. By comparing investments in each price zone before and after the reform using a difference-in-differences estimator, I find that 18 percent of all projects constructed by large developers after the reform were allocated to the high price zone due to the reform. This effect is not driven by geographic differences in approval rates, suggesting that the estimated effect also captures investors’ locational choices. Small, sometimes locally owned developers, did not react to the reform. A likely reason is that the locational choice set of small developers usually only includes one of the price zones. A nearest neighbor matching estimator comparing areas with similar prerequisites for wind power, largely confirms the main DiD results.

Can the European intraday market be designed as a congestion management tool?

The growth in intermittent renewable power in Europe has increased the need to trade closer to real-time. In recent years, intraday markets have been integrated across Europe, contributing to a more efficient market. On the other hand, European day-ahead and intraday markets are still based on zonal pricing, where the physical characteristics of transmission networks are only partly taken into account, and congestion problems may remain until close to real-time. In this paper, we suggest an intraday market design based on the coordinated multilateral trade (CMT) approach, using power transfer distribution factors and other network information provided by the transmission system operators, to generate profitable, but feasible, and possibly multilateral trades based on nodal bids. Profitable trades can be found by independent brokers or by having the power exchange running frequent batch auctions at discrete-time intervals. Each trade is accepted by the TSO if no violation occurs in the network, or is curtailed. If the network flow is feasible at the start of the intraday market, the procedure converges to the optimal economic dispatch. In any case, this suggestion for intraday trading, taking into account simple information about network constraints, in a procedure consistent with the functioning of the European intraday market, can help bridge the gap between the zonal day-ahead markets and the real-time constraints of the power system.

Optimal Distributed Frequency and Voltage Control for Zonal Electricity Markets

Zonal pricing is a well-suited mechanism to incentivize grid-supporting behavior of profit-maximizing producers and consumers operating on a large-scale power system. In zonal electricity markets, local system operators create individual price zones, which provide appropriate price signals depending on local grid conditions such as an excess or shortage of electrical energy in certain regions. In this paper, a real-time zonal pricing controller for AC power networks is presented that ensures frequency and voltage stability as well as Pareto efficiency of the resulting closed-loop equilibria. Based on a dynamic network model that takes line losses and power exchange with adjacent price zones into account, distributed continuous-time control laws are derived which require only neighbor-to-neighbor communication. Application to a real-time congestion management strategy illustrates how spatially and temporally differentiated prices enable grid-supportive operation of the participants without interventions by a superordinate control authority. Effectiveness of different zonal pricing concepts compared to an isolated grid operation is demonstrated through simulations on the IEEE-57 bus system.

An Efficient Framework to Estimate the State of Charge Profiles of Hydro Units for Large-Scale Zonal and Nodal Pricing Models

The power system is undergoing significant changes so as to accommodate an increasing amount of renewably generated electricity. In order to facilitate these changes, a shift from the currently employed zonal pricing to nodal pricing is a topic that is receiving increasing interest. To explore alternative pricing mechanisms for the European electricity market, one needs to solve large-scale nodal optimization problems. These are computationally intensive to solve, and a parallelization or sequencing of the models can become necessary. The seasonality of hydro inflows and the issue of myopic foresight that does not display the value in storing water today and utilizing it in the future is a known problem in power system modeling. This work proposes a heuristic step-wise methodology to obtain state of charge profiles for hydro storage units for large-scale nodal and zonal models. Profiles obtained from solving an aggregated model serve as guidance for a nodal model with high spatial and temporal resolution that is solved in sequences. The sequenced problem is guided through soft constraints that are enforced with different sets of penalty factors. The proposed methodology allows for adjustments to congestions on short timescales and proves to perform well in comparison to other approaches to this issue suggested in the literature. Following the input profile closely on a long timescale renders good results for the nodal model.

Congestion management market design- Approach for the Nordics and Central Europe

It is undeniable that congestion is an increasing problem of power systems nowadays. Ways to tackle it embrace non-market and market-based solutions. Network reinforcement, network reconfiguration, reactive power control, etc., are some instances of non-market-based solutions. In contrast, solutions based on market mechanisms such as zonal pricing, nodal pricing, redispatch, and markets for flexibility (e.g., congestion management market (CMM)) are considered market-based alternatives. Among the said alternatives, CMM is the newest concept, leading to many unknown issues associated with it that initiated us to present the article. The article discusses the congestion problem and criteria to evaluate congestion management (CM) alternatives. In addition, to have a practical grasp of CM, its cost, and how congestion is traditionally handled, a real-life problem solving of a distribution system operator (DSO) is presented. Concerning CMMs, four conditions that need to be met before considering CMM as a CM solution are specified. In addition, three CM services, including long-term, short-term, and operational, followed by different implementations of those services, are proposed and compared. In general, CMM design is a complex problem because several stakeholders with different tasks, visions, business models, and capabilities must work together; therefore, looking at the situation from various angles is beneficial. This article thrives on providing a vivid view on the features of different CMM models to stakeholders such as DSOs, transmission system operators (TSOs), flexibility service providers (FSPs), regulators, existing markets, retailers, balance responsible parties (BRPs), etc., that may have interest in CMMs.

Comparative study of pricing mechanisms and settlement methods in electricity spot energy market based on multi-agent simulation

With the advancement of electricity market reform, eight pilot spot provinces in China have started electricity spot market trading. In the settlement rules of spot markets in each region, some areas apply nodal weighted average price to the settlement’s customer and supply sides. The economic incentive effect of the spot market pricing mechanism on market participants affects their bidding strategies. Therefore, based on the current research on electric spot market pricing mechanisms, this paper investigates the effects of bidding procedures and fairness of generator and consumption sides under three settlement mechanisms: locational marginal pricing, zonal pricing, and average system pricing. Through multi-agent-based electricity market simulation, the paper establishes a spot market clearing and settlement model to quantitatively analyze the impact of zonal settlement mechanisms on the interests of each market player. By validating analysis results, the paper makes suggestions for selecting electricity price mechanisms in China’s electric spot market environment.

LIBERALIZATION OF RELATIONS IN THE RUSSIAN FEDERATION HEAT SUPPLY FIELD: BACKGROUND, FIRST RESULTS AND TARIFF CONSEQUENCES

The paper considers prerequisites and consequences analysis of the relations in the heat supply field liberalization process of taking place in the Russian Federation. The article is dedicated to theoretical and practical background for liberalization, which determine the possibility and feasibility of a radical change in the system of relations between participants in the heat energy markets. The authors considered the current forms of using competition mechanisms in heat markets: competition between centralized and decentralized heat supply, competition between heat producers, competition for admission to market entry, quasi-competition based on incentive regulation. The article examines Russian instruments for liberalizing heat energy markets. The authors identified the features of the new (target) model of the heat energy market formation and changes in the spheres of responsibility of its individual subjects, including the strengthening of the institution of unified heat supply organizations. Separately, the authors assessed the price (tariff) consequences of the transition to pricing for thermal energy using the “no more expensive than alternative sources of heat” method. This method provides for setting a contractual price for heat energy not higher than a ceiling level that the regulator approves based on the cost of heat supply from an “alternative” heat source (boiler house). The authors investigated changes in prices (tariffs) for heat energy for consumers in municipalities pioneering the transition to price zones of heat supply. The article reveals that the establishment of a tariff by the "alternative boiler house" method did not effect to a sharp rise in prices (tariffs) for consumers. This is based on the application of measures provided for by legislation. In conclusion, the authors made recommendations on further expanding the composition of price zones for heat supply.

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.

Simulating Zonal Pricing in East African Electricity Markets

The East African electricity markets are due to fully couple and embrace short term trading. Traditionally, excess generation in any country has to be bilaterally traded or delayed signing Power Purchase Agreements to avoid capacity charges. However, in recent years, with increased pressure to increase energy access in the region, the Eastern Africa Power Pool (EAPP) has been established to introduce robust bilateral and short-term markets. Price signals are critical to determining investment levels in a competitive electricity market. Therefore, this research aims to investigate the feasibility of bidding zones using clustering methodology in selected East African Countries. This paper simulates a zonal wholesale market with optimal power flow and k-means clustering theory to identify optimal bidding zones strategies and determine Nash-equilibrium prices. The results indicate that when the markets engage in the wholesale markets with planned transmission investment, the configuration of three optimal zones induces the highest welfare level. Therefore, this research informs the Eastern Africa and the African Union energy policy debate on the African Single Electricity Market and the Eastern Africa Power Pool electricity market dilemma.

Structural analysis of the cadastrial value of land plots in settlements on the example of the Kabardino-Balkarian Republic

The structure of the cadastral value, as a fact of the taxable base, has been studied, and an optimal approach has been developed for assessing the value of a land plot within a settlement in order to achieve a balance between the tax rate and the normal financing of local budgets, ensuring the most accurate determination of the tax base, which is the most important condition for improving the quality of control of tax legislation . The article presents an analysis of the structure of the cadastral value, which is the value in use, while it is predetermined by the usefulness of the real estate object, reflecting certain operational capabilities of the object for a particular owner, not associated with the sale and other market transactions. According to the guidelines, the valuation method used by the appraisal budgetary organization is based on the market value, which is characterized by the ability of real estate to be exchanged for money and goods. The determination of the cadastral value is carried out according to similar characteristics of the sale and purchase and is determined as the average market price of a typical object, built on a generalization of the market prices of real estate objects within the selected price zones. Contradictions in the practice of determining the value of land predetermine the need to develop proposals and recommendations for reducing the unit of the tax base within the framework of the minimum value for a settlement when determining the cadastral value of a land plot.

Controversial Results of the Reform of the Russian Electric Power Industry in 1986–2008

The article discusses the ambiguous results of the reform of the Russian electric power industry. Some of the intended goals of the reform have been achieved, while others have not yet been achieved, and the reform should be continued. Although more than 13 years have passed since the final stage of the reform, there is no agreement in the literature on many key issues characterizing the reform: an explanation of the reasons and factors that influenced the decision to reform the Russian electric power industry, the goals of the reform, the type of the reform model, the validity of its adaptation to the real Russian conditions and institutions that had developed by the beginning of the reform, the results of the reform and their value for society. It was found that contradictory results of the reform are caused by both objective and subjective factors. Along with obvious successes (e.g., denationalization of the industry) and obvious failures (including failure to create retail electricity markets) many results (elimination of vertical integration, level of competition on wholesale electricity markets, etc.) are not observable and have not received a clear and unambiguous assessment of their usefulness to society. Studies using modern economic theory and economic-mathematical modeling were required. No statistically significant economies of scale in electricity generation have been found in large companies generating electricity. Thus, the use of competition as a mechanism to coordinate the interests of society, producers and consumers of electricity and the creation of a wholesale electricity market is scientifically justified. Unification of small producers for their withdrawal to the wholesale electricity market should be accompanied by an economic analysis of the cost function of the united company. It is shown that in the short term the wholesale electricity market created in the first and second price zones is close to competitive, but in the long term there is a threat: this market may become uncompetitive.

System integration costs of wind and hydropower generations in Turkey

In this paper we investigate the system integration costs for wind and river type hydropower generation in the Turkish electricity market, which mainly covers system imbalance costs, congestion management costs and ancillary services costs. The paper also shows that reflecting the imbalance costs to the renewable generators themselves reduced their generation forecast errors drastically. By using an Autoregressive Distributed Lag (ARDL) model, we find that wind and river type hydro generations cause significant imbalances in the Turkish electrical system. On average 1 MWh hydro and wind generation increases imbalance costs by 12.04 TL ($2.10) and 4.03 TL ($0.7), respectively. Most of the renewable imbalance effect stems from the congestion between the main consumption areas and the generation zones of river-type hydro. These costs are socialized and reflected to all consumers through transmission tariffs. It seems reasonable to reflect the congestions costs to the ones causing them which will create the necessary incentives to curb them. Defining new price zones that consider the persistent congestions in the system is recommended for this problem as it is a market-friendly and efficient solution.

Optimal installation of renewable electricity sources: the case of Italy

Starting from the model in Koch-Vargiolu (2019), we test the real impact of current renewable installed power in the electricity price in Italy, and assess how much the renewable installation strategy which was put in place in Italy deviated from the optimal one obtained from the model in the period 2012--2018. To do so, we consider the Ornstein-Uhlenbeck (O-U) process, including an exogenous increasing process influencing the mean reverting term, which is interpreted as the current renewable installed power. Using real data of electricity price, photovoltaic and wind energy production from the six main Italian price zones, we estimate the parameters of the model and obtain quantitative results, such as the production of photovoltaic energy impacts the North zone, while wind is significant for Sardinia and the Central North zone does not present electricity price impact. Then we implement the solution of the singular optimal control problem of installing renewable power production devices, in order to maximize the profit of selling the produced energy in the market net of installation costs. We extend the results of \cite{KV} to the case when no impact on power price is presented, and to the case when $N$ players can produce electricity by installing renewable power plants. We are thus able to describe the optimal strategy and compare it with the real installation strategy that was put in place in Italy.

Assessing the Regional Redistributive Effect of Renewable Power Production Through a Spot Market Algorithm Simulator: The Case of Italy

We develop an algorithm that simulates by iterative splitting the hourly equilibrium (price-quantity) of the Italian day-ahead market. The algorithm is employed to study the sensitivity of equilibria to changes in production from renewable units at different locations. We show that, when power markets are organised on zonal-basis with locational price signals and final buyers pay a unique price for the power bought in the day-ahead market, a larger renewable production decreases the average zonal prices, but the distribution of benefits largely depends on power plants’ localisation. We analyse the impact of a larger renewable production on network congestion occurrence, zonal balance between demand and supply and zonal generation mix as well. We calculate the zonal substitution effects between renewable and non-renewable technologies, and within renewable technologies. Our analysis sheds some lights on the multiple consequences of energy transition policies and highlights the need of prioritizing over policies’ objectives.

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.

Application GIS technology to determine the land price in Ward 10, District 8, Ho Chi Minh City

Determination of land price is one of the most important land management roles. Land prices and changes of land prices are evident in the real estate market. The real estate market plays an important role in the economy of Vietnam. Recently, when the population is increasing, leading to increased housing demand. The distribution of the population is concentrated in big cities. Then the demand for land information, especially land prices are always interested by people. However, real information on land price is always lacking and virtual. If people want the real estate market to develop well, information on land price must be clear and adequate. The land price area map satisfies those requirements. Land price zone map helps managers about land effectively and the land price map also helps the people - participants in the real estate market to grasp the most reliable information of land prices. GIS technology is applied in the paper to zone land prices using land price information collecting in Ward 10, District 8, Ho Chi Minh City

Development of a genetic algorithm and its application to a bi-level problem of system cost optimal electricity price zone configurations

The topic of alternative price zone configurations is frequently discussed in Central Western Europe where – so far – national borders coincide with borders of price zones. Reconfiguring these price zones is one option in order to improve congestion management, foster trading across borders of price zones and, thus, to increase welfare. In view of the significant increase in redispatch volumes and costs over the last years due to increasing feed-in from renewable energy sources in conjunction with delayed grid expansion, this topic has gained in importance. To determine these improved price zone configurations for a large-scale system like Central Western Europe, often either configurations based on expert guesses are considered or heuristics using approximate criteria like locational marginal prices are used to obtain price zones through clustering. In contrast, the present paper formulates a bi-level optimization problem of how to determine optimal configurations in terms of system costs and – given the size and nature of the problem – solves it with a specially developed genetic algorithm. Resulting price zone configurations are compared to both exogenously given, expert-based price zone configurations from the Entso-E bidding zone study and endogenously assessed configurations from a hierarchical cluster algorithm. Results show that the genetic algorithm achieves best results in terms of system costs. Moreover, the comparison with results from a hierarchical cluster analysis reveals important drawbacks of the latter methodology.