Uncertain bidding zone configurations: The role of expectations for transmission and generation capacity expansion

Ambrosius M, Egerer J, Grimm V, van der Weijde AH (2020)

Publication Language: English

Publication Type: Journal article

Publication year: 2020

Journal

European Journal of Operational Research Elsevier

Book Volume: 285

Pages Range: 343 - 359

Journal Issue: 1

URI: https://www.sciencedirect.com/science/article/pii/S037722172030045X

DOI: 10.1016/j.ejor.2020.01.024

Abstract

Ongoing policy discussions on the reconfiguration of bidding zones in European electricity markets induce uncertainty about the future market design. This paper deals with the question of how this uncertainty affects market participants and their long-run investment decisions in generation and transmission capacity. Generalizing the literature on pro-active network expansion planning, we propose a stochastic multilevel model which incorporates generation capacity investment, network expansion, and market operation, taking into account uncertainty about the future bidding zone configuration. Using a stylized two-node network, we disentangle different effects that uncertainty has on market outcomes. If there is a possibility that future bidding zone configurations provide improved regional price signals, welfare gains materialize even if the change does not actually take place. As a consequence, welfare gains of an actual change of the bidding zone configuration are substantially lower due to those anticipatory effects. Additionally, we show substantial distributional effects in terms of both expected gains and risks, between producers and consumers and between different generation technologies.

Authors with CRIS profile

Mirjam Ambrosius Lehrstuhl für Volkswirtschaftslehre, insbesondere Wirtschaftstheorie Jonas Egerer Lehrstuhl für Volkswirtschaftslehre, insbesondere Wirtschaftstheorie Veronika Grimm Lehrstuhl für Volkswirtschaftslehre, insbesondere Wirtschaftstheorie

Additional Organisation(s)

Energie-Campus Nürnberg (EnCN)

Related research project(s)

Energiemarktdesign (EMD) Energie Campus Nürnberg (EnCN2) Jan. 1, 2017 - Dec. 31, 2021 Economy Energie Campus Nürnberg (EnCN1) July 29, 2011 - Dec. 31, 2016

Involved external institutions

University of Edinburgh GB United Kingdom (GB)

How to cite

APA:

Ambrosius, M., Egerer, J., Grimm, V., & van der Weijde, A.H. (2020). Uncertain bidding zone configurations: The role of expectations for transmission and generation capacity expansion. European Journal of Operational Research, 285(1), 343 - 359. https://dx.doi.org/10.1016/j.ejor.2020.01.024

MLA:

Ambrosius, Mirjam, et al. "Uncertain bidding zone configurations: The role of expectations for transmission and generation capacity expansion." European Journal of Operational Research 285.1 (2020): 343 - 359.

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