IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2404.06489.html
   My bibliography  Save this paper

Finding Stable Price Zones in European Electricity Markets: Aiming to Square the Circle?

Author

Listed:
  • Teodora Dobos
  • Martin Bichler
  • Johannes Knorr

Abstract

The European day-ahead electricity market is split into multiple bidding zones with a uniform price. The increase in renewables leads to a growing number of interventions in the generation of energy sources and increasing redispatch costs. To ensure efficient congestion management, the EU Commission mandated a Bidding Zone Review (BZR) to reevaluate the configuration of European bidding zones. An integral part of this process was a locational marginal pricing study. Based on this study, alternative bidding zone configurations were proposed. These bidding zones shall be stable and robust over time. For Germany, four configurations were suggested. We analyzed the proposed configurations considering different clustering algorithms and periods based on the publicly released data set. We found that the configurations do not reduce the price standard deviations within zones much, and the average prices across zones are similar. Other configurations identified based on clustering the prices lead to lower price variance but they are not geographically coherent. Independent of the clustering features and algorithms used, the resulting clusters are not stable over time. While the costs of a bidding zone split in Germany are high, the effect on prices would be low based on an analysis of the new BZR data.

Suggested Citation

  • Teodora Dobos & Martin Bichler & Johannes Knorr, 2024. "Finding Stable Price Zones in European Electricity Markets: Aiming to Square the Circle?," Papers 2404.06489, arXiv.org, revised Apr 2024.
  • Handle: RePEc:arx:papers:2404.06489
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2404.06489
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Stoft, Steven, 1997. "Transmission pricing zones: simple or complex?," The Electricity Journal, Elsevier, vol. 10(1), pages 24-31.
    2. Ambrosius, Mirjam & Grimm, Veronika & Kleinert, Thomas & Liers, Frauke & Schmidt, Martin & Zöttl, Gregor, 2020. "Endogenous price zones and investment incentives in electricity markets: An application of multilevel optimization with graph partitioning," Energy Economics, Elsevier, vol. 92(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Grimm, Veronika & Rückel, Bastian & Sölch, Christian & Zöttl, Gregor, 2021. "The impact of market design on transmission and generation investment in electricity markets," Energy Economics, Elsevier, vol. 93(C).
    2. Haoke Wu & Tao Huang & Stefania Conti & Ettore Bompard, 2024. "A Framework for Assessing Electricity Market Performance under Different Bidding Zone Configurations," Energies, MDPI, vol. 17(11), pages 1-16, June.
    3. Dijk, Justin & Willems, Bert, 2011. "The effect of counter-trading on competition in electricity markets," Energy Policy, Elsevier, vol. 39(3), pages 1764-1773, March.
    4. Fraunholz, Christoph & Hladik, Dirk & Keles, Dogan & Möst, Dominik & Fichtner, Wolf, 2021. "On the long-term efficiency of market splitting in Germany," Energy Policy, Elsevier, vol. 149(C).
    5. Ländner, Eva-Maria & Märtz, Alexandra & Schöpf, Michael & Weibelzahl, Martin, 2019. "From energy legislation to investment determination: Shaping future electricity markets with different flexibility options," Energy Policy, Elsevier, vol. 129(C), pages 1100-1110.
    6. Pär Holmberg and Ewa Lazarczyk, 2015. "Comparison of congestion management techniques: Nodal, zonal and discriminatory pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    7. Jonas Egerer & Jens Weibezahn & Hauke Hermann, 2015. "Two Price Zones for the German Electricity Market: Market Implications and Distributional Effects," Discussion Papers of DIW Berlin 1451, DIW Berlin, German Institute for Economic Research.
    8. Heffron, Raphael J. & Körner, Marc-Fabian & Sumarno, Theresia & Wagner, Jonathan & Weibelzahl, Martin & Fridgen, Gilbert, 2022. "How different electricity pricing systems affect the energy trilemma: Assessing Indonesia's electricity market transition," Energy Economics, Elsevier, vol. 107(C).
    9. Grimm, Veronika & Sölch, Christian & Zöttl, Gregor, 2022. "Emissions reduction in a second-best world: On the long-term effects of overlapping regulations," Energy Economics, Elsevier, vol. 109(C).
    10. Holmberg, P. & Lazarczyk, E., 2012. "Congestion management in electricity networks: Nodal, zonal and discriminatory pricing," Cambridge Working Papers in Economics 1219, Faculty of Economics, University of Cambridge.
    11. Burstedde, Barbara, 2012. "From Nodal to Zonal Pricing - A Bottom-Up Approach to the Second-Best," EWI Working Papers 2012-9, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    12. Selcuk, O. & Acar, B. & Dastan, S.A., 2022. "System integration costs of wind and hydropower generations in Turkey," Renewable and Sustainable Energy Reviews, Elsevier, vol. 156(C).
    13. Glismann, Samuel, 2021. "Ancillary Services Acquisition Model: Considering market interactions in policy design," Applied Energy, Elsevier, vol. 304(C).
    14. Grimm, Veronika & Rückel, Bastian & Sölch, Christian & Zöttl, Gregor, 2019. "Regionally differentiated network fees to affect incentives for generation investment," Energy, Elsevier, vol. 177(C), pages 487-502.
    15. Ambrosius, Mirjam & Grimm, Veronika & Kleinert, Thomas & Liers, Frauke & Schmidt, Martin & Zöttl, Gregor, 2020. "Endogenous price zones and investment incentives in electricity markets: An application of multilevel optimization with graph partitioning," Energy Economics, Elsevier, vol. 92(C).
    16. He, Kaijian & Yu, Lean & Tang, Ling, 2015. "Electricity price forecasting with a BED (Bivariate EMD Denoising) methodology," Energy, Elsevier, vol. 91(C), pages 601-609.
    17. Egerer, Jonas & Weibezahn, Jens & Hermann, Hauke, 2016. "Two price zones for the German electricity market — Market implications and distributional effects," Energy Economics, Elsevier, vol. 59(C), pages 365-381.
    18. Katzen, Matthew & Leslie, Gordon W., 2024. "Siting and operating incentives in electrical networks: A study of mispricing in zonal markets," International Journal of Industrial Organization, Elsevier, vol. 94(C).
    19. Prandini, Alberto, 2007. "Good, BETTA, best? The role of industry structure in electricity reform in Scotland," Energy Policy, Elsevier, vol. 35(3), pages 1628-1642, March.
    20. Tobias Rösch & Peter Treffinger & Barbara Koch, 2021. "Regional Flexibility Markets—Solutions to the European Energy Distribution Grid—A Systematic Review and Research Agenda," Energies, MDPI, vol. 14(9), pages 1-32, April.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2404.06489. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.