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The relevance of grid expansion under zonal markets

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Listed:
  • 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, International Association for Energy Economics, vol. 0(Number 5).
    • Handle: RePEc:aen:journl:ej38-5-just
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    References listed on IDEAS

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    Cited by:

    1. Fianu, Emmanuel Senyo & Ahelegbey, Daniel Felix & Grossi, Luigi, 2022. "Modeling risk contagion in the Italian zonal electricity market," European Journal of Operational Research, Elsevier, vol. 298(2), pages 656-679.
    2. Simshauser, Paul & Billimoria, Farhad & Rogers, Craig, 2022. "Optimising VRE capacity in Renewable Energy Zones," Energy Economics, Elsevier, vol. 113(C).
    3. Chen, Yihsu & Zhang, Duan & Takashima, Ryuta, 2019. "Carbon emission forensic in the energy sector: Is it worth the effort?," Energy Policy, Elsevier, vol. 128(C), pages 868-878.
    4. Samuli Honkapuro & Jasmin Jaanto & Salla Annala, 2023. "A Systematic Review of European Electricity Market Design Options," Energies, MDPI, vol. 16(9), pages 1-26, April.
    5. Paul Simshauser & Farhad Billimoria & Craig Rogers, 2021. "Optimising VRE plant capacity in Renewable Energy Zones," Working Papers EPRG2121, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    6. Simshauser, Paul, 2021. "Renewable Energy Zones in Australia's National Electricity Market," Energy Economics, Elsevier, vol. 101(C).
    7. Ambrosius, M. & Egerer, J. & Grimm, V. & Weijde, A.H. van der, 2020. "Uncertain bidding zone configurations: The role of expectations for transmission and generation capacity expansion," European Journal of Operational Research, Elsevier, vol. 285(1), pages 343-359.
    8. Simshauser, P., 2021. "Renewable Energy Zones in Australia’s National Electricity Market," Cambridge Working Papers in Economics 2119, Faculty of Economics, University of Cambridge.

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