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One price fits all? Wind power expansion under uniform and nodal pricing in Germany

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  • Schmidt, Lukas

    (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))

  • Zinke, Jonas

    (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))

Abstract

This paper evaluates investment incentives for wind power under uniform and nodal pricing. An electricity system model is developed, which allows for investments into wind power while considering transmission grid constraints in detail. Targeting equally high wind capacities under nodal and uniform pricing until 2030, locations of new wind power plants shift towards sites with lower wind yield under nodal prices. The wind energy fed into the grid, though, is higher under nodal pricing since curtailment is cut to a third. Grid-optimal wind locations require higher subsidy payments but decrease yearly variable supply costs by 1.5% in 2030. However, distributional effects are an obstacle to implementing nodal pricing, where about 75% of German demand faces electricity costs increase of about 5%. For mitigating distorted investment signals of uniform pricing, implementing investment restrictions within grid expansion areas prove to be more promising than a latitude-dependent generator-component in the grid tariff design.

Suggested Citation

  • Schmidt, Lukas & Zinke, Jonas, 2020. "One price fits all? Wind power expansion under uniform and nodal pricing in Germany," EWI Working Papers 2020-6, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
  • Handle: RePEc:ris:ewikln:2020_006
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    References listed on IDEAS

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    Cited by:

    1. vom Scheidt, Frederik & Qu, Jingyi & Staudt, Philipp & Mallapragada, Dharik S. & Weinhardt, Christof, 2022. "Integrating hydrogen in single-price electricity systems: The effects of spatial economic signals," Energy Policy, Elsevier, vol. 161(C).
    2. Lundin, Erik, 2022. "Geographic price granularity and investments in wind power: Evidence from a Swedish electricity market splitting reform," Energy Economics, Elsevier, vol. 113(C).
    3. Eicke, Anselm & Schittekatte, Tim, 2022. "Fighting the wrong battle? A critical assessment of arguments against nodal electricity prices in the European debate," Energy Policy, Elsevier, vol. 170(C).
    4. Martin Bichler & Hans Ulrich Buhl & Johannes Knörr & Felipe Maldonado & Paul Schott & Stefan Waldherr & Martin Weibelzahl, 2022. "Electricity Markets in a Time of Change: A Call to Arms for Business Research," Schmalenbach Journal of Business Research, Springer, vol. 74(1), pages 77-102, March.

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    More about this item

    Keywords

    Nodal Pricing; Market Design; Energy System Modeling; Renewable Energies; Market Values;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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