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The Relevance of Grid Expansion under Zonal Markets

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  • Joachim Bertsch
  • Tom Brown
  • Simeon Hagspiel
  • Lisa Just

Abstract

The European electricity market design is based on zonal markets with uniform prices. Hence, no differentiated locational price signals are provided within these zones. If intra-zonal congestion occurs due to missing grid expansion, this market design reveals its inherent incompleteness, and might lead to severe short and long-term distortions. In this paper, we study these distortions with a focus on the impact of restricted grid expansion under zonal markets. Therefore, we use a long-term model of the European electricity system and restrict the allowed expansion of the transmission grid per decade. We find that the combination of an incomplete market design and restricted grid expansion leads to a misallocation of generation capacities and the inability to transport electricity to where it is needed. This results in an energy imbalance in some regions of up to 2-3% and difficulty when reaching envisaged political targets in the power sector.

Suggested Citation

  • Joachim Bertsch & Tom Brown & Simeon Hagspiel & Lisa Just, 2017. "The Relevance of Grid Expansion under Zonal Markets," The Energy Journal, , vol. 38(5), pages 129-152, September.
    • Handle: RePEc:sae:enejou:v:38:y:2017:i:5:p:129-152
    DOI: 10.5547/01956574.38.5.jber
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    References listed on IDEAS

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    1. Grimm, Veronika & Martin, Alexander & Schmidt, Martin & Weibelzahl, Martin & Zöttl, Gregor, 2016. "Transmission and generation investment in electricity markets: The effects of market splitting and network fee regimes," European Journal of Operational Research, Elsevier, vol. 254(2), pages 493-509.
    2. Richter, Jan, 2011. "DIMENSION - A Dispatch and Investment Model for European Electricity Markets," EWI Working Papers 2011-3, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    3. Fürsch, Michaela & Hagspiel, Simeon & Jägemann, Cosima & Nagl, Stephan & Lindenberger, Dietmar & Tröster, Eckehard, 2013. "The role of grid extensions in a cost-efficient transformation of the European electricity system until 2050," Applied Energy, Elsevier, vol. 104(C), pages 642-652.
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    Cited by:

    1. Yang, Yifan & Guo, Ju’e & Li, Yi & Zhou, Jiandong, 2024. "Forecasting day-ahead electricity prices with spatial dependence," International Journal of Forecasting, Elsevier, vol. 40(3), pages 1255-1270.

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