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

  • Holmberg, P.
  • Lazarczyk, E.

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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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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  1. Joanne Evans and Richard Green, 2005. "Why Did British Electricity Prices Fall after 1998?," Discussion Papers 05-13, Department of Economics, University of Birmingham.
  2. 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.
  3. 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.
  4. Hsu, Michael, 1997. "An introduction to the pricing of electric power transmission," Utilities Policy, Elsevier, vol. 6(3), pages 257-270, September.
  5. Ehrenmann, Andreas & Smeers, Yves, 2005. "Inefficiencies in European congestion management proposals," Utilities Policy, Elsevier, vol. 13(2), pages 135-152, June.
  6. Green, Richard, 2010. "Are the British electricity trading and transmission arrangements future-proof?," Utilities Policy, Elsevier, vol. 18(4), pages 186-194, December.
  7. Dijk, J. & Willems, Bert, 2011. "The effect of counter-trading on competition in electricity markets," Other publications TiSEM 4bcaff5c-737d-44c7-af8a-a, Tilburg University, School of Economics and Management.
  8. Anderson, Edward J. & Holmberg, Pär & Philpott, Andrew B., 2009. "Mixed Strategies in Discriminatory Divisible-good Auctions," Working Paper Series 814, Research Institute of Industrial Economics.
  9. Bernard, Jean-Thomas & Guertin, Chantal, 2002. "Nodal Pricing and Transmission Losses: An Application to a Hydroelectric Power System," Discussion Papers dp-02-34, Resources For the Future.
  10. 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.
  11. 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.
  12. 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.
  13. Severin Borenstein & James Bushnell & Steven Stoft, 1997. "The Competitive Effects of Transmission Capacity in a Deregulated Electricity Industry," NBER Working Papers 6293, National Bureau of Economic Research, Inc.
  14. 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.
  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. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-42, September.
  17. Cho, In-Koo, 2003. " Competitive Equilibrium in a Radial Network," RAND Journal of Economics, The RAND Corporation, vol. 34(3), pages 438-60, Autumn.
  18. Stoft, Steven, 1997. "Transmission pricing zones: simple or complex?," The Electricity Journal, Elsevier, vol. 10(1), pages 24-31.
  19. 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.
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