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Breaking Borders with Joint Energy and Transmission Right Auctions—Assessing the Required Changes for Empowering Long-Term Markets in Europe

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Listed:
  • Diyun Huang

    (Electa Department, University of Leuven/Energyville, 3001 Heverlee, Belgium)

  • Geert Deconinck

    (Electa Department, University of Leuven/Energyville, 3001 Heverlee, Belgium)

Abstract

The establishment of a long-term, cross-border market in which forward market coupling and bilateral contracts are developed in an integrated approach is instrumental for the European internal electricity market. We propose the joint energy and transmission right auction (JETRA) mechanism, developed by O’Neill et al., as a solution for long-term cross-border markets in Europe. The main contribution of this research lies in its examination of the underlying market structures for effective JETRA implementation. We compare the institutional setting, market rules, and grid modeling under nodal and zonal pricing systems, adapting JETRA to the flow-based market coupling (FBMC) mechanism that is currently implemented in the European day-ahead market. This adaptation reveals the inherent limitations of FBMC in supporting JETRA, in particular in the long-term auction. We also identify constraints posed by existing European market rules, particularly those that affect the application of multi-settlement rules and the effective timeframe of hedging instruments. In conclusion, our research suggests that transitioning from zonal to nodal pricing is essential for JETRA’s effective implementation. Furthermore, a comprehensive market reform is required to seamlessly integrate long- and short-term markets.

Suggested Citation

  • Diyun Huang & Geert Deconinck, 2024. "Breaking Borders with Joint Energy and Transmission Right Auctions—Assessing the Required Changes for Empowering Long-Term Markets in Europe," Energies, MDPI, vol. 17(8), pages 1-44, April.
    • Handle: RePEc:gam:jeners:v:17:y:2024:i:8:p:1923-:d:1377701
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    References listed on IDEAS

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    1. Chao, Hung-Po & Peck, Stephen, 1996. "A Market Mechanism for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 10(1), pages 25-59, July.
    2. Giorgia Oggioni and Yves Smeers, 2012. "Degrees of Coordination in Market Coupling and Counter-Trading," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    3. Jamasb, Tooraj & Nepal, Rabindra & Davi-Arderius, Daniel, 2023. "Electricity Markets in Transition and Crisis: Balancing Efficiency, Equity, and Security," Working Papers 4-2023, Copenhagen Business School, Department of Economics.
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