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Working Paper No. 1211

Simulation and Evaluation of Zonal Electricity Market Designs

Working Paper
Hesamzadeh, Mohammad Reza, Pär Holmberg and Mahir Sarfati (2018). “Simulation and Evaluation of Zonal Electricity Market Designs”. IFN Working Paper No. 1211. Stockholm: Research Institute of Industrial Economics (IFN).

Mohammad Reza Hesamzadeh, Pär Holmberg, Mahir Sarfati

Zonal pricing with countertrading (a market-based redispatch) gives arbitrage opportunities to the power producers located in the export-constrained nodes. They can increase their profit by increasing the output in the dayahead market and decrease it in the real-time market (the inc-dec game).

We show that this leads to large inefficiencies in a standard zonal market. We also show how the inefficiencies can be significantly mitigated by changing the design of the real-time market. We consider a two-stage game with oligopoly producers, wind-power shocks and real-time shocks.

The game is formulated as a two-stage stochastic equilibrium problem with equilibrium constraints (EPEC), which we recast into a two-stage stochastic Mixed-Integer Bilinear Program (MIBLP). We present numerical results for a six-node and the IEEE 24-node system.

Pär Holmberg

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