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Congestion management in electricity networks: Nodal, zonal and discriminatory pricing

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  • Holmberg, P.
  • Lazarczyk, E.

Abstract

Wholesale electricity markets use different market designs to handle congestion in the transmission network. We compare nodal, zonal and discriminatory pricing in general networks with transmission constraints and loop flows. We conclude that in large games with many producers who are allowed to participate in the real-time market the three market designs result in the same efficient dispatch. However, zonal pricing with counter-trading results in additional payments to producers in exportconstrained nodes.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe1219.pdf
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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1219.

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Date of creation: 25 Apr 2012
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Handle: RePEc:cam:camdae:1219

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Web page: http://www.econ.cam.ac.uk/index.htm

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Keywords: Congestion management; wholesale electricity market; transmission network; nodal pricing; zonal pricing with countertrading; discriminatory pricing; large game;

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  1. Holmberg, Pär & Newbery, David, 2009. "The Supply Function Equilibrium and Its Policy Implications for Wholesale Electricity Auctions," Working Paper Series 812, Research Institute of Industrial Economics.
  2. Evans, J. & Green, R., 2003. "Why did British Electricity Prices Fall after 1998?," Cambridge Working Papers in Economics 0326, Faculty of Economics, University of Cambridge.
  3. Neuhoff, Karsten & Barquin, Julian & Bialek, Janusz W. & Boyd, Rodney & Dent, Chris J. & Echavarren, Francisco & Grau, Thilo & von Hirschhausen, Christian & Hobbs, Benjamin F. & Kunz, Friedrich & Nabe, 2013. "Renewable electric energy integration: Quantifying the value of design of markets for international transmission capacity," Energy Economics, Elsevier, vol. 40(C), pages 760-772.
  4. Severin Borenstein & James. Bushnell & Steven Stoft, 2000. "The Competitive Effects of Transmission Capacity in A Deregulated Electricity Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 294-325, Summer.
  5. Edward J. Anderson & Pär Holmberg & Andrew B. Philpott, 2013. "Mixed strategies in discriminatory divisible-good auctions," RAND Journal of Economics, RAND Corporation, vol. 44(1), pages 1-32, 03.
  6. Brunekreeft, Gert & Neuhoff, Karsten & Newbery, David, 2005. "Electricity transmission: An overview of the current debate," Utilities Policy, Elsevier, vol. 13(2), pages 73-93, June.
  7. Cho, In-Koo, 2003. " Competitive Equilibrium in a Radial Network," RAND Journal of Economics, The RAND Corporation, vol. 34(3), pages 438-60, Autumn.
  8. Bernard, Jean-Thomas & Guertin, Chantal, 2000. "Nodal Pricing and Transmissions Losses. An Application to a Hydroelectric Power System," Cahiers de recherche 0007, GREEN.
  9. Stoft, Steven, 1997. "Transmission pricing zones: simple or complex?," The Electricity Journal, Elsevier, vol. 10(1), pages 24-31.
  10. Neuhoff, Karsten & Barquin, Julian & Boots, Maroeska G. & Ehrenmann, Andreas & Hobbs, Benjamin F. & Rijkers, Fieke A.M. & Vazquez, Miguel, 2005. "Network-constrained Cournot models of liberalized electricity markets: the devil is in the details," Energy Economics, Elsevier, vol. 27(3), pages 495-525, May.
  11. Richard Green, 2007. "Nodal pricing of electricity: how much does it cost to get it wrong?," Journal of Regulatory Economics, Springer, vol. 31(2), pages 125-149, April.
  12. Green, Richard, 2010. "Are the British electricity trading and transmission arrangements future-proof?," Utilities Policy, Elsevier, vol. 18(4), pages 186-194, December.
  13. Dijk, J. & Willems, Bert, 2011. "The effect of counter-trading on competition in electricity markets," Open Access publications from Tilburg University urn:nbn:nl:ui:12-4561526, Tilburg University.
  14. Ehrenmann, Andreas & Smeers, Yves, 2005. "Inefficiencies in European congestion management proposals," Utilities Policy, Elsevier, vol. 13(2), pages 135-152, June.
  15. Leuthold, Florian & Weigt, Hannes & von Hirschhausen, Christian, 2008. "Efficient pricing for European electricity networks - The theory of nodal pricing applied to feeding-in wind in Germany," Utilities Policy, Elsevier, vol. 16(4), pages 284-291, December.
  16. 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.
  17. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-42, September.
  18. Hsu, Michael, 1997. "An introduction to the pricing of electric power transmission," Utilities Policy, Elsevier, vol. 6(3), pages 257-270, September.
  19. Richard Gilbert & Neuhoff, K. & Newbery, D., 2002. "Allocating Transmission to Mitigate Market Power in Electricity Networks," Cambridge Working Papers in Economics 0225, Faculty of Economics, University of Cambridge.
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