Evolution of Fundamental Price Determination within Electricity Market Simulations

• Main Authors: Lothar Wyrwoll, Moritz Nobis, Stephan Raths, Albert Moser
• Format: Article
• Language: English
• Published: MDPI AG 2021-09-01
• Series: Energies
• Subjects: electricity price modeling; Lagrangian relaxation; market coupling; flow-based market coupling; counterintuitive flows
• Online Access: https://www.mdpi.com/1996-1073/14/17/5454

Electricity prices are the key instrument for coordinating electricity markets. For long-term market analyses, price determination based on fundamental unit commitment simulations is required. Within the European wholesale market, electricity prices result from a market clearing, which finds a welfare-optimal price–quantity tuple considering a coupling of multiple market areas with limited transmission capacity. With increasing exchange capacities in Europe, the precise modeling of the market coupling is required. Many market simulation models use multi-stage approaches with a separation of market coupling and price determination. In this paper, we analyze a new single-stage approach that combines both steps and theoretically and empirically demonstrate its precision by a backtest. For this purpose, we compare a simulated versus a historical electricity price distribution. Moreover, we explain the necessary adjustments for future regulatory developments of the European electricity market regarding flow-based market coupling and propose a concept for the application of future regulatory developments. We demonstrate further developments using a future scenario.