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Introduction of Nodal Pricing into the new Mexican Electricity Market through FTR Allocations

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  • Friedrich Kunz, Juan Rosellón, and Claudia Kemfert

Abstract

The change from a subsidized zonal pricing system to a full nodal pricing regime in the new Mexican electricity market could improve the efficiency of electricity system operation. However, resulting price modifications might also swing surplus across producers and consumers. In this paper, we calculate nodal prices for the Mexican power system and further analyze how allocations of financial transmission rights (FTRs) can be used to mitigate resulting distributional effects. The share of FTRs to be allocated to different generation plants and loads is studied as a second step of an electricity tariff subsidy reform agenda that includes, as a first step, the change to nodal pricing and, as a third step, the reformulation of actual regressive subsidies in a progressive way. We test our model in a realistic nodal price setting, based on an hourly modeling of the Mexican power system.

Suggested Citation

  • Friedrich Kunz, Juan Rosellón, and Claudia Kemfert, 2017. "Introduction of Nodal Pricing into the new Mexican Electricity Market through FTR Allocations," The Energy Journal, International Association for Energy Economics, vol. 0(KAPSARC S).
  • Handle: RePEc:aen:journl:ej38-si1-rosellon
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    References listed on IDEAS

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    1. Egerer, Jonas & Rosellón, Juan & Schill, Wolf-Peter, 2015. "Power System Transformation toward Renewables: An Evaluation of Regulatory Approaches for Network Expansion," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics, pages 105-128.
    2. Chao, Hung-po & Peck, Stephen & Oren, Shmuel & Wilson, Robert, 2000. "Flow-Based Transmission Rights and Congestion Management," The Electricity Journal, Elsevier, vol. 13(8), pages 38-58, October.
    3. Kunz, Friedrich & Neuhoff, Karsten & Rosellón, Juan, 2016. "FTR allocations to ease transition to nodal pricing: An application to the German power system," Energy Economics, Elsevier, vol. 60(C), pages 176-185.
    4. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-242, September.
    5. Schill, Wolf-Peter & Egerer, Jonas & Rosellón, Juan, 2015. "Testing Regulatory Regimes for Power Transmission Expansion with Fluctuating Demand and Wind Generation," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics, pages 1-28.
    6. Kristin Komives & Todd M. Johnson & Jonathan D. Halpern & Jose Luis Aburto & John R. Scott, 2009. "Residential Electricity Subsidies in Mexico : Exploring Options for Reform and for Enhancing the Impact on the Poor," World Bank Publications, The World Bank, number 5959.
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    Cited by:

    1. 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.
    2. Massa, Ricardo & Rosellón, Juan, 2020. "Linear and nonlinear Granger causality between electricity production and economic performance in Mexico," Energy Policy, Elsevier, vol. 142(C).

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