Working Paper No. 1211

Simulation and Evaluation of Zonal Electricity Market Designs

Published: May 3, 2018Pages: 39Keywords: Two-stage game; Zonal pricing; Wholesale electricity market; Bilinear programmingJEL-codes: C61; C63; C72; D43; D47; L13; L94

Simulation and Evaluation of Zonal Electricity Market Designs Mohammad Reza Hesamzadeh, Pär Holmberg and 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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