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FTR allocations to ease transition to nodal pricing: An application to the German power system

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  • Kunz, Friedrich
  • Neuhoff, Karsten
  • Rosellón, Juan

Abstract

A shift from zonal to nodal pricing improves the efficiency of system operation. However, resulting price changes also shift surplus across generation and loads at different locations. As individual actors can lose, they might oppose any reform. We explore how allocation of financial transmission rights can be used to mitigate the distributional impact. The fundamental effects with regard to reference node/hub for FTRs, the share of FTRs to be freely allocated and the metric to determine the proportion of rights allocated are explored. We test the results in a setting based on the hourly modeling of the German power system at nodal representation.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:eneeco:v:60:y:2016:i:c:p:176-185
    DOI: 10.1016/j.eneco.2016.09.018
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    References listed on IDEAS

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    1. William Hogan & Juan Rosellón & Ingo Vogelsang, 2010. "Toward a combined merchant-regulatory mechanism for electricity transmission expansion," Journal of Regulatory Economics, Springer, vol. 38(2), pages 113-143, October.
    2. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-242, September.
    3. Friedrich Kunz, 2013. "Improving Congestion Management: How to Facilitate the Integration of Renewable Generation in Germany," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    4. Florian Leuthold & Hannes Weigt & Christian Hirschhausen, 2012. "A Large-Scale Spatial Optimization Model of the European Electricity Market," Networks and Spatial Economics, Springer, vol. 12(1), pages 75-107, March.
    5. Jonas Egerer & Clemens Gerbaulet & Richard Ihlenburg & Friedrich Kunz & Benjamin Reinhard & Christian von Hirschhausen & Alexander Weber & Jens Weibezahn, 2014. "Electricity Sector Data for Policy-Relevant Modeling: Data Documentation and Applications to the German and European Electricity Markets," Data Documentation 72, DIW Berlin, German Institute for Economic Research.
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    Cited by:

    1. Kemfert, Claudia & Kunz, Friedrich & Rosellón, Juan, 2016. "A welfare analysis of electricity transmission planning in Germany," Energy Policy, Elsevier, vol. 94(C), pages 446-452.
    2. Kunz, Friedrich, 2018. "Quo Vadis? (Un)scheduled electricity flows under market splitting and network extension in central Europe," Energy Policy, Elsevier, vol. 116(C), pages 198-209.
    3. 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).
    4. Hesamzadeh, Mohammad Reza & Biggar, Darryl R., 2021. "Generalized FTRs for hedging inter-nodal pricing risk," Energy Economics, Elsevier, vol. 94(C).
    5. Claudia Kemfert & Friedrich Kunz & Juan Rosellón, 2015. "A Welfare Analysis of the Electricity Transmission Regulatory Regime in Germany," Discussion Papers of DIW Berlin 1492, DIW Berlin, German Institute for Economic Research.

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    More about this item

    Keywords

    Financial transmission rights; Nodal prices; Congestion management; Electricity; Germany;
    All these keywords.

    JEL classification:

    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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