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On the long run effects of market splitting : Why more price zones might decrease welfare

Title data

Grimm, Veronika ; Martin, Alexander ; Weibelzahl, Martin ; Zöttl, Gregor:
On the long run effects of market splitting : Why more price zones might decrease welfare.
In: Energy Policy. Vol. 94 (2016) . - pp. 453-467.
ISSN 0301-4215
DOI: https://doi.org/10.1016/j.enpol.2015.11.010

Abstract in another language

In liberalized electricity markets we observe different approaches to congestion management. While nodal pricing is implemented in Canada and some markets in the United States, European markets are split up into a limited number of price zones with uniform prices, in order to at least partially realize the benefits of regional price differentiation. Zonal boundaries often coincide with national borders, but some countries are also split into multiple zones. In this paper we shed light on possible negative welfare effects of market splitting that arise in a model where investment incentives in new generation capacity are taken into account if zones are misspecified. We show that standard approaches to configure price zones – on the basis of projected nodal price differences or congested transmission capacity – may fail to suggest reasonable zone specifications. Also an adjustment of Available Transfer Capacities (ATCs) between zones or a switch to flow-based market splitting does not ensure positive welfare effects. Our analysis suggests that a careful and detailed evaluation of the system is needed to ensure a reasonable zone configuration.

Further data

Item Type: Article in a journal
Refereed: Yes
Institutions of the University: Research Institutions
Research Institutions > Affiliated Institutes
Research Institutions > Affiliated Institutes > Fraunhofer Project Group Business and Information Systems Engineering
Research Institutions > Affiliated Institutes > FIM Research Center Finance & Information Management
Result of work at the UBT: No
DDC Subjects: 000 Computer Science, information, general works > 004 Computer science
300 Social sciences > 330 Economics
Date Deposited: 03 May 2018 06:55
Last Modified: 03 May 2018 06:55
URI: https://eref.uni-bayreuth.de/id/eprint/43972