The Impact of Market Design on Transmission and Generation Investment in Electricity Markets

Other publication type


Publication Details

Author(s): Grimm V, Rückel B, Sölch C, Zöttl G
Publication year: 2018
Language: English


Abstract

In this paper we propose an equilibrium model in order to analyze the impact of electricity market design on generation and transmission expansion in liberalized electricity markets. In a multi-level structure, our framework takes into account that generation investment and operation is decided by private investors, while network expansion and redispatch is decided by a regulated transmission system operator - as well as the different objectives of firms (profit maximization) and the regulator (welfare maximization). In order to illustrate the possibilities to quantify long term economic effects with our framework, we calibrate our model for the German electricity market. We consider various moderate adjustments of the market design: (i) the division of the market area into two price zones, (ii) the efficient curtailment of renewable production and (iii) a cost-benefit-driven balance between network expansion and network management measures. We then analyze the impact of these market designs on generation and transmission investment in case those design elements are anticipated upon network development planning. The resulting investment and production decisions are compared to a benchmark that reflects the current German electricity market design and to an overall optimal first-best benchmark. Our results reveal that price zones do have a significant impact on locational choice of generators and result in a reduced need for network expansion, but lead to only moderate annual welfare gains of approximately 0.9% of annual total system costs. Anticipation of optimal curtailment of renewables and a cost-benefit-driven use of redispatch operations upon network expansion planning, however, implies a welfare gain of over 4.9% of annual total system costs per year as compared to the existing market design, which equals 85% of the maximal possible welfare gain of the first-best benchmark.


FAU Authors / FAU Editors

Grimm, Veronika Prof. Dr.
Lehrstuhl für Volkswirtschaftslehre, insbesondere Wirtschaftstheorie
Rückel, Bastian
Lehrstuhl für Volkswirtschaftslehre, insbesondere Wirtschaftstheorie
Sölch, Christian
Lehrstuhl für Volkswirtschaftslehre, insbesondere Wirtschaftstheorie
Zöttl, Gregor Prof. Dr.
Professur für Volkswirtschaftslehre


Additional Organisation
Energie-Campus Nürnberg (EnCN)


How to cite

APA:
Grimm, V., Rückel, B., Sölch, C., & Zöttl, G. (2018). The Impact of Market Design on Transmission and Generation Investment in Electricity Markets.

MLA:
Grimm, Veronika, et al. The Impact of Market Design on Transmission and Generation Investment in Electricity Markets. 2018.

BibTeX: 

Last updated on 2018-10-09 at 12:53