The Impact of Neighboring Markets on Renewable Locations, Transmission Expansion, and Generation Investment

Egerer J, Grimm V, Kleinert T, Schmidt M, Zöttl G (2021)

Publication Language: English

Publication Type: Journal article, Original article

Publication year: 2021

Journal

European Journal of Operational Research Elsevier

Book Volume: 292

Pages Range: 696 - 713

Journal Issue: 2

URI: https://www.sciencedirect.com/science/article/abs/pii/S0377221720309486

DOI: 10.1016/j.ejor.2020.10.055

Abstract

Many long-term investment planning models for liberalized electricity markets either optimize for the entire electricity system or focus on confined jurisdictions, abstracting from adjacent markets. In this paper, we provide models for analyzing the impact of the interdependencies between a core electricity market and its neighboring markets on key long-run decisions. This we do both for zonal and nodal pricing schemes. The identification of welfare optimal investments in transmission lines and renewable capacity within a core electricity market requires a spatially restricted objective function, which also accounts for benefits from cross-border electricity trading. This leads to mixed-integer nonlinear multilevel optimization problems with bilinear nonconvexities for which we adapt a Benders-like decomposition approach from the literature. In a case study, we use a stylized six-node network to disentangle different effects of optimal regional (as compared to supra-regional) investment planning. Regional planning alters investment in transmission and renewable capacity in the core region, which affects private investment in generation capacity also in adjacent regions and increases welfare in the core region at the cost of system welfare. Depending on the congestion-pricing scheme, the regulator of the core region follows different strategies to increase welfare causing distributional effects among stakeholders.

Authors with CRIS profile

Jonas Egerer Lehrstuhl für Volkswirtschaftslehre, insbesondere Wirtschaftstheorie Veronika Grimm Lehrstuhl für Volkswirtschaftslehre, insbesondere Wirtschaftstheorie Thomas Kleinert Economics - Discrete Optimization - Mathematics (EDOM) Karl Gregor Zöttl Professur für Volkswirtschaftslehre

Additional Organisation(s)

Energie-Campus Nürnberg (EnCN)

Related research project(s)

Energiemarktdesign (EMD) Energie Campus Nürnberg (EnCN2) Jan. 1, 2017 - Dec. 31, 2021

Involved external institutions

Universität Trier DE Germany (DE)

How to cite

APA:

Egerer, J., Grimm, V., Kleinert, T., Schmidt, M., & Zöttl, G. (2021). The Impact of Neighboring Markets on Renewable Locations, Transmission Expansion, and Generation Investment. European Journal of Operational Research, 292(2), 696 - 713. https://dx.doi.org/10.1016/j.ejor.2020.10.055

MLA:

Egerer, Jonas, et al. "The Impact of Neighboring Markets on Renewable Locations, Transmission Expansion, and Generation Investment." European Journal of Operational Research 292.2 (2021): 696 - 713.

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