Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/210905 
Year of Publication: 
2019
Series/Report no.: 
IFN Working Paper No. 1264
Publisher: 
Research Institute of Industrial Economics (IFN), Stockholm
Abstract: 
Electricity markets employ different congestion management methods to handle the limited transmission capacity of the power system. This paper compares production efficiency and other aspects of nodal and zonal pricing. We consider two types of zonal pricing: zonal pricing with Available Transmission Capacity (ATC) and zonal pricing with Flow-Based Market Coupling (FBMC). We develop a mathematical model to study the imperfect competition under zonal pricing with FBMC. Zonal pricing with FBMC is employed in two stages, a day-ahead market stage and a re-dispatch stage. We show that the optimality conditions and market clearing conditions can be reformulated as a mixed integer linear program (MILP), which is straightforward to implement. Zonal pricing with ATC and nodal pricing is used as our benchmarks. The imperfect competition under zonal pricing with ATC and nodal pricing are also formulated as MILP models. All MILP models are demonstrated on 6-node and the modified IEEE 24-node systems. Our numerical results show that the zonal pricing with ATC results in large production inefficiencies due to the inc-dec game. Improving the representation of the transmission network as in the zonal pricing with FBMC mitigates the inc-dec game.
Subjects: 
Congestion management
Zonal pricing
Flow-based market coupling
JEL: 
C61
C72
D43
L13
L94
Document Type: 
Working Paper

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