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Real-Time Pricing in the Nordic Power markets

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  • Kopsakangas Savolainen, Maria
  • Svento, Rauli

Abstract

In this paper we study the potential effects of Real-Time Pricing (RTP) of electricity on the need for long-run capacities in the Nordic Power markets. A characteristic of the Nordic Power market is the large variety of production technologies, of which hydro and nuclear power are capacity constrained. We analyze the impact of RTP on: the need for total, peak and midmerit capacities; total demand; prices; peak demand hours; and economic welfare. We have also studied whether the results of RTP are sensitive to the simultaneous implementation of tradable emission permits. We find that RTP diminishes the need for total capacity even with inelastic demand. Our results show that even with modest assumptions related to RTP participation, the annual midmerit and peaker capacity efficiency savings amount to 97million Euros, which are around 6% of their total annual investment costs. The price of the peak demand hour clearly diminishes as the share of the RTP customers increases or demand becomes more price elastic. We compare RTP and tradable emission permits as two separate instruments in reaching energy use efficiencies and show how these two instruments must be seen as complementary and not as substitutable instruments. We show how RTP and tradable emission permits have a positive correlation in promoting market access of renewable energy sources. We find that welfare effects of the implementation of RTP are positive.

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  • Kopsakangas Savolainen, Maria & Svento, Rauli, 2012. "Real-Time Pricing in the Nordic Power markets," Energy Economics, Elsevier, vol. 34(4), pages 1131-1142.
    • Handle: RePEc:eee:eneeco:v:34:y:2012:i:4:p:1131-1142
    DOI: 10.1016/j.eneco.2011.10.006
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    6. Faber, Isaac & Lane, William & Pak, Wayne & Prakel, Mary & Rocha, Cheyne & Farr, John V., 2014. "Micro-energy markets: The role of a consumer preference pricing strategy on microgrid energy investment," Energy, Elsevier, vol. 74(C), pages 567-575.
    7. Mattias Vesterberg and Chandra Kiran B. Krishnamurthy, 2016. "Residential End-use Electricity Demand: Implications for Real Time Pricing in Sweden," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    8. Bigerna, Simona & Hagspiel, Verena & Kort, Peter M. & Wen, Xingang, 2023. "How damaging are environmental policy targets in terms of welfare?," European Journal of Operational Research, Elsevier, vol. 311(1), pages 354-372.
    9. Santhosh, Apoorva & Farid, Amro M. & Youcef-Toumi, Kamal, 2014. "Real-time economic dispatch for the supply side of the energy-water nexus," Applied Energy, Elsevier, vol. 122(C), pages 42-52.
    10. Brännlund, Runar & Vesterberg, Mattias, 2021. "Peak and off-peak demand for electricity: Is there a potential for load shifting?," Energy Economics, Elsevier, vol. 102(C).
    11. Gambardella, Christian & Pahle, Michael, 2018. "Time-varying electricity pricing and consumer heterogeneity: Welfare and distributional effects with variable renewable supply," Energy Economics, Elsevier, vol. 76(C), pages 257-273.
    12. Olkkonen, Ville & Rinne, Samuli & Hast, Aira & Syri, Sanna, 2017. "Benefits of DSM measures in the future Finnish energy system," Energy, Elsevier, vol. 137(C), pages 729-738.
    13. Mattias Vesterberg & Chandra Kiran B. Krishnamurthy, 2016. "Residential End-use Electricity Demand: Implications for Real Time Pricing in Sweden," The Energy Journal, , vol. 37(4), pages 141-164, October.
    14. Florian Kuhnlenz & Pedro H. J. Nardelli & Santtu Karhinen & Rauli Svento, 2017. "Implementing Flexible Demand: Real-time Price vs. Market Integration," Papers 1709.02667, arXiv.org, revised Feb 2018.
    15. Vesterberg, Mattias, 2016. "The hourly income elasticity of electricity," Energy Economics, Elsevier, vol. 59(C), pages 188-197.
    16. Vesterberg, Mattias, 2017. "Power to the people: Electricity demand and household behavior," Umeå Economic Studies 942, Umeå University, Department of Economics.
    17. Nezamoddini, Nasim & Wang, Yong, 2017. "Real-time electricity pricing for industrial customers: Survey and case studies in the United States," Applied Energy, Elsevier, vol. 195(C), pages 1023-1037.
    18. Gambardella, Christian & Pahle, Michael & Schill, Wolf-Peter, 2020. "Do Benefits from Dynamic Tariffing Rise? Welfare Effects of Real-Time Retail Pricing Under Carbon Taxation and Variable Renewable Electricity Supply," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 75(1), pages 183-213.
    19. Pechan, Anna & Eisenack, Klaus, 2014. "The impact of heat waves on electricity spot markets," Energy Economics, Elsevier, vol. 43(C), pages 63-71.
    20. Kühnlenz, Florian & Nardelli, Pedro H.J. & Karhinen, Santtu & Svento, Rauli, 2018. "Implementing flexible demand: Real-time price vs. market integration," Energy, Elsevier, vol. 149(C), pages 550-565.
    21. Wang, Ge & Zhang, Qi & Li, Hailong & McLellan, Benjamin C. & Chen, Siyuan & Li, Yan & Tian, Yulu, 2017. "Study on the promotion impact of demand response on distributed PV penetration by using non-cooperative game theoretical analysis," Applied Energy, Elsevier, vol. 185(P2), pages 1869-1878.
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    More about this item

    Keywords

    Real-Time Pricing; Nordic Power markets; Capacity investments; Emission permit trade;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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