Analyzing the market power in a nodal representation of the central western europe
The effects of nodal and zonal pricing on the market power in electricity markets have been largely discussed, but, to our knowledge, this issue has rarely been tested on a real or close to real European system.
This paper uses the open source test-bed Agent-based Modeling of Electricity Systems (AMES) to compare the ability of generators to exert market power in a nodal or a zonal market design on a simplified version of the Central Western European network (including France, Belgium, Germany and the Netherlands) with 114 nodes.
Analyzing the price increases with strategic bidding compared to a benchmark, where producers bid true marginal costs and the pricing is respectively nodal or zonal, we found that zonal pricing allows less market power than nodal pricing within the Day-Ahead market. This result can be explained by a less balkanised market where competitive pressure applies on a larger geographical area for a zonal design.
The result also underlines the importance of market power mitigation for nodal pricing. In a zonal market design, however, market power may migrate to the real-time, the timeframe when grid congestions are dealt with.
