Endogenous Price Zones and Investment Incentives in Electricity Markets: An Application of Multilevel Optimization with Graph Partitioning

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Publication Details

Author(s): Ambrosius M, Grimm V, Kleinert T, Liers F, Schmidt M, Zöttl G
Publication year: 2018
Language: English


Abstract

In the course of the energy transition, load and supply centers are growing apart in many electricity markets worldwide, rendering regional price signals even more important to provide adequate locational investment incentives. In this context, the establishment of price zones in order to at least partially price grid bottlenecks is under discussion. This paper addresses the key question of how to configure price zones on a network in order to optimally govern investment and production decisions in the long run. We extend the multilevel equilibrium model from Grimm et al. (2017a) to endogenously determine welfare-maximizing price zones for a given electricity market and analyze their impact on market outcomes. This mixed-integer nonlinear model contains a graph partitioning problem on the first level to model the zoning of the network. Using a generalized Benders decomposition and a problem-tailored scenario clustering for reducing the input data size, we are able to solve the model to global optimality even for large instances. We apply the approach to the German electricity market as an example to examine the impact of optimal zoning on key performance indicators such as welfare, generation mix and locations, or electricity prices. It turns out that already a few optimally chosen zones lead to significant welfare gains.


FAU Authors / FAU Editors

Ambrosius, Mirjam
Lehrstuhl für Volkswirtschaftslehre, insbesondere Wirtschaftstheorie
Grimm, Veronika Prof. Dr.
Lehrstuhl für Volkswirtschaftslehre, insbesondere Wirtschaftstheorie
Kleinert, Thomas
Juniorprofessur für Optimierung von Energiesystemen
Liers-Bergmann, Frauke Prof. Dr.
Professur für Angewandte Mathematik (Ganzzahlige und robuste Optimierung)
Schmidt, Martin Prof. Dr.
Juniorprofessur für Optimierung von Energiesystemen
Zöttl, Gregor Prof. Dr.
Professur für Volkswirtschaftslehre


Research Fields

Energy Markets and Energy Systems Analysis
Research focus area of a faculty: Fachbereich Wirtschaftswissenschaften


How to cite

APA:
Ambrosius, M., Grimm, V., Kleinert, T., Liers, F., Schmidt, M., & Zöttl, G. (2018). Endogenous Price Zones and Investment Incentives in Electricity Markets: An Application of Multilevel Optimization with Graph Partitioning.

MLA:
Ambrosius, Mirjam, et al. Endogenous Price Zones and Investment Incentives in Electricity Markets: An Application of Multilevel Optimization with Graph Partitioning. 2018.

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Last updated on 2019-28-03 at 00:36

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