Sölch C (2019)
Publication Language: English
Publication Type: Thesis
Publication year: 2019
This thesis analyzes the impact of market design on transmission and generation investments in liberalized electricity markets with zonal pricing. For this purpose, an equilibrium model is introduced, which exhibits a multi-level structure taking into account that generation investment and operation is decided by private, profit maximizing firms while network expansion and redispatch is decided by a regulated, welfare maximizing transmission system operator. The proposed "Generation And Transmission Expansion" (GATE) model can be calibrated for real world electricity markets and enables to assess the impact of various market design proposals from the scientific and policy debate.
Chapter 2 gives a brief literature review of the development of long-run electricity market models which have been introduced to analyze investment in generation and/or network infrastructure. It is shown that a multi-level structure is required to properly assess the impact of market designs on transmission and generation investments in liberalized electricity markets with zonal pricing. In order to illustrate the possibilities to quantify long run economic effects with the proposed GATE model, it is calibrated with data from the German electricity market for the year 2035 in Chapters 4 – 6. A data description can be found in Chapter 3.
Chapter 4 provides a detailed description of the proposed bi-level GATE model and an integrated planner model, which is used as a first-best benchmark. Furthermore, the GATE model is used to evaluate several market design proposals: (i) the division of the market area into two price zones (market splitting), (ii) the efficient curtailment of renewable production, and (iii) a cost-benefit-driven balance between network expansion and network management measures. The resulting investment and production decisions are compared to a benchmark that reflects the current German electricity market design and to the overall optimal first-best benchmark. The 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 only have a moderate positive effect on welfare. Anticipation of optimal renewable curtailment and a cost-benefit-driven use of redispatch operations upon network expansion planning, however, has the potential to exploit a substantial share of the efficiency potential of the first-best benchmark.
In Chapter 5, the GATE model is adjusted such that it incorporates regionally differentiated network fees which have to be paid by generators (a so called g-component). This measure is proposed as alternative to market splitting or nodal pricing as it has the potential to influence the location of generation investments without leading to different electricity prices in the considered market area. The results show that while the introduction of a g-component has a significant impact on the locational choice for generation capacities, there are no significant effects on either welfare or network expansion.
Chapter 6 analyzes investment incentives for flexible manufacturing facilities under different market designs. For this purpose, flexibilization of industrial electricity consumption is included in the GATE model. The model allows to investigate incentives for flexibilization and the impact of flexible industrial electricity consumers on the system. An application to the German electricity market reveals that flexible industrial electricity consumption can be profitable for firms. If, however, the share of flexible electricity consumers is high, price fluctuations are mitigated, which lowers the individual cost savings from demand flexibility. Assessing the impact of flexible electricity demand on the system shows that in scenarios with flexible industrial electricity consumption, welfare is considerably higher than in those without. We conclude with a comparison of nodal and uniform pricing and illustrate the importance of regional price signals with respect to an efficient allocation of flexible industrial demand.
Finally, Chapter 7 focuses on a comparison of cost-based redispatch and market-based redispatch in the short run. For this purpose, a bi-level model is used to analyze a uniform price electricity spot market that is followed by redispatch in the case of network congestion. For networks with at least three nodes, we show that in contrast to cost-based redispatch, market-based redispatch may result in an inefficient dispatch if the transmission system operator is incentivized to minimize redispatch cost by the regulatory framework. If, however, the transmission system operator is obliged to implement the welfare maximizing (instead of the redispatch cost minimizing) dispatch by regulation, this will result in an efficient dispatch also in case of market-based redispatch.
In summary, this thesis illustrates how multi-level electricity market models such as the GATE model can be used to analyze the impact of different market design proposals from the scientific and policy debate on transmission and generation investments in liberalized electricity markets with zonal pricing. The findings in Chapters 4 – 7 show that there are various options for improving current inefficiencies in the electricity system. Since each option again has its drawbacks, a combination of several market design modifications will probably be the best solution.
APA:
Sölch, C. (2019). The impact of market design on transmission and generation investments in liberalized electricity markets with zonal pricing (Dissertation).
MLA:
Sölch, Christian. The impact of market design on transmission and generation investments in liberalized electricity markets with zonal pricing. Dissertation, 2019.
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