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Evolution of Fundamental Price Determination within Electricity Market Simulations

Author

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  • Lothar Wyrwoll

    (Institute for High Voltage Equipment and Grids, Digitalization and Energy Economics (IAEW), RWTH Aachen University, 52062 Aachen, Germany)

  • Moritz Nobis

    (Trianel GmbH, 52070 Aachen, Germany)

  • Stephan Raths

    (Amprion GmbH, 44263 Dortmund, Germany)

  • Albert Moser

    (Institute for High Voltage Equipment and Grids, Digitalization and Energy Economics (IAEW), RWTH Aachen University, 52062 Aachen, Germany)

Abstract

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.

Suggested Citation

  • 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.
    • Handle: RePEc:gam:jeners:v:14:y:2021:i:17:p:5454-:d:627376
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    References listed on IDEAS

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    1. Michael Metzger & Mathias Duckheim & Marco Franken & Hans Joerg Heger & Matthias Huber & Markus Knittel & Till Kolster & Martin Kueppers & Carola Meier & Dieter Most & Simon Paulus & Lothar Wyrwoll & , 2021. "Pathways toward a Decarbonized Future—Impact on Security of Supply and System Stability in a Sustainable German Energy System," Energies, MDPI, vol. 14(3), pages 1-28, January.
    2. Peter Cramton, 2017. "Electricity market design," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 33(4), pages 589-612.
    3. Weron, Rafał, 2014. "Electricity price forecasting: A review of the state-of-the-art with a look into the future," International Journal of Forecasting, Elsevier, vol. 30(4), pages 1030-1081.
    4. 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).
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    1. Schmitt, Carlo & Schumann, Klemens & Kollenda, Katharina & Blank, Andreas & Rebenaque, Olivier & Dronne, Théo & Martin, Arnault & Vassilopoulos, Philippe & Roques, Fabien & Moser, Albert, 2022. "How will local energy markets influence the pan-European day-ahead market and transmission systems? A case study for local markets in France and Germany," Applied Energy, Elsevier, vol. 325(C).

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