Simulation and Evaluation of Zonal Electricity Market Designs

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 day-ahead market and decrease it in the real-time market (the inc-dec game). For a six-node and a 24-node system, we numerically show that this leads to large inefficiencies in a standard zonal market. We also show how the inefficiencies can be significantly mitigated for these two examples 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 Linear Constraints (MILC).