Transmission capacity allocation in zonal electricity markets

We propose a novel framework for modeling zonal electricity markets, based on projecting the constraints of the nodal network onto the space of the zonal aggregation of the network. The framework avoids circular definitions and discretionary parameters, which are recurrent in the implementation and study of zonal markets. Using this framework, we model and analyze two zonal market designs currently present in Europe: flow-based market coupling (FBMC) and available-transfer-capacity market coupling (ATCMC). We develop cutting-plane algorithms for simulating FBMC and ATCMC while accounting for the robustness of imports/exports to single element failures, and we conduct numerical simulations of FBMC and ATCMC on a realistic instance of the Central Western European system under the equivalent of 100 years of operating conditions. We find that FBMC and ATCMC are unable to anticipate the congestion of branches interconnecting zones and branches within zones, and that both zonal designs achieve similar overall cost efficiencies (0.01% difference), while a nodal market design largely outperforms both of them (5.09% better than FBMC). These findings raise the question of whether it is worth for more European countries to switch from ATCMC to FBMC, instead of advancing directly towards a nodal market design.