Improving flow-based market coupling by integrating redispatch potential―Evidence from a large-scale model

In European power markets, recent regulatory changes impose minimum trading capacities to increase cross-border trade. However, the sweeping definition of minimum margins neglects underlying physical grid constraints, resulting in higher redispatch volumes and costs. This raises questions about the efficiency and welfare effects of minimum trading capacities and whether alternative approaches exist for increasing cross-border trade. Against this background, this contribution studies the impact of integrating redispatch potential into flow-based market coupling (FBMC). Accordingly, cross-zonal capacity is not raised to a regulatory-specified minimum level but is increased whenever it is efficient, i.e., the net welfare effect is positive. To this end, a multi-stage model covering capacity calculation, market coupling, and redispatch stages is developed, and a large-scale numerical analysis of Central Europe is performed. The results confirm that minimum margins increase cross-border trade by roughly 20 TWh. However, this comes at a high cost due to additional redispatch needs, which reduce overall welfare by more than 100 M€ annually. Integrating redispatch potentials in the market-clearing stage leads to a more efficient increase in cross-border capacities and elevates welfare by up to 215 M€ per year. Finally, the analysis derives policy recommendations for introducing the redispatch potential approach.