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

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  • Schönheit, David
  • Dierstein, Constantin
  • Möst, Dominik

Abstract

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.

Suggested Citation

  • Schönheit, David & Dierstein, Constantin & Möst, Dominik, 2021. "Do minimum trading capacities for the cross-zonal exchange of electricity lead to welfare losses?," Energy Policy, Elsevier, vol. 149(C).
    • Handle: RePEc:eee:enepol:v:149:y:2021:i:c:s0301421520307412
    DOI: 10.1016/j.enpol.2020.112030
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    References listed on IDEAS

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    4. Schönheit, David & Weinhold, Richard & Dierstein, Constantin, 2020. "The impact of different strategies for generation shift keys (GSKs) on the flow-based market coupling domain: A model-based analysis of Central Western Europe," Applied Energy, Elsevier, vol. 258(C).
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    Cited by:

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    2. Bucksteeg, Michael & Wiedmann, Michael & Pöstges, Arne & Haller, Markus & Böttger, Diana & Ruhnau, Oliver & Schmitz, Richard, 2022. "The transformation of integrated electricity and heat systems—Assessing mid-term policies using a model comparison approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 160(C).
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    5. Lothar Wyrwoll & Moritz Nobis & Stephan Raths & Albert Moser, 2021. "Evolution of Fundamental Price Determination within Electricity Market Simulations," Energies, MDPI, vol. 14(17), pages 1-17, September.

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