Flow-based market coupling is a critical element of the electricity market in Europe. Transmission System Operators determine the commercial transmission capacity that can be implicitly traded in a zonal day-ahead market. However, this entails a trade-off: higher commercial transmission capacities increase market efficiency, affecting the electricity market prices, but also increase redispatch costs, affecting the network tariff. The decision on the commercial transmission capacity should optimally balance day-ahead welfare and redispatch costs, but depends on the rules and regulated incentives enforced on the TSOs. A MinRAM criterion, i.e., imposing minima for the commercial transmission capacity, is a one-size-fits-all policy without variation in time and space that unlikely leads to optimal transmission capacity allocation and is hard to tune because regulators have incomplete information. Incentive regulation is an alternative policy instrument promoting welfare-maximizing commercial transmission capacities, robust against information asymmetry. We provide a set of mathematical conditions to properly design an incentive scheme that rewards price convergence and penalizes excessive redispatch costs. Therefore, this paper serves as a stepping stone towards tapping the full potential of cross-border trade in zonal markets for policymakers, regulators, TSOs and market participants.

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The market integration of hybrid off-shore projects, consisting of wind farms and transmission assets connecting different market zones, requires re-examining bidding zone definitions. Policy makers consider separate off-shore bidding zones to optimally integrate off-shore wind farms in power systems. In this paper, we apply Advanced Hybrid Coupling to include off-shore DC transmission lines in flow-based market coupling, and compare different bidding zone configurations. We find that off-shore bidding zones lead to a transfer of welfare: the producers' surplus of off-shore wind farm owners decreases as a result of a lower average price and the congestion rent for TSOs increases. Despite that an off-shore bidding zone signals transmission scarcity better, it impacts the need for support instruments for off-shore wind farms.@en

Since 2015 available cross-border transmission capacity is determined using flow-based market coupling (FBMC) in the day-ahead electricity markets of Central Western Europe. This paper empirically estimates the effect of introducing FBMC on day-ahead electricity price convergence and cross-border exchange volumes. In the month following the introduction of FBMC, hourly cross-border exchange volumes increased by 1,700 MWh/h, while prices between countries converged by 10.4 €/MWh. Since then, observed cross-border exchange volumes decreased to 400 MWh/h below their levels before the introduction of FBMC by the end of 2017. However, when controlling for changing market conditions in the years following the introduction of FBMC, we find that FBMC still has a persistent positive effect of around 1,150 MWh/h on hourly cross-border exchange volumes and of 2 €/MWh on price convergence. Finally, we provide suggestive evidence that decreased commercial transmission capacity on critical branches might have contributed to the decline of the benefits over time. This paper is useful for policymakers, regulators, TSOs, and other stakeholders in light of the extension of FBMC to other regions as it is the target methodology for coupling market zones in the European single electricity market.@en

Michiel Kenis is a PhD researcher at the Energy Systems Integration & Modeling Group at the University of Leuven with a doctoral mandate from the Flemish Institute for Technological Research (VITO). He was a visiting researcher at the Massachusetts Institute of Technology. His research focuses on cross-border electricity markets. He holds a MSc in energy engineering and a MSc in policy economics, both from the University of Leuven. Luca Lanzilao completed his MSc degree in mathematical engineering from Politecnico di Torino in 2018. Currently, he is pursuing a PhD at KU Leuven. His research focuses on studying the response of the atmospheric boundary layer to wind farm forcing, with particular emphasis on meso-scale phenomena, such as gravity waves. Kenneth Bruninx received a MSc degree in energy engineering in 2011, a MSc in management, and a PhD degree in mechanical engineering in 2016, all from the University of Leuven (KU Leuven), Belgium. Currently, he is an assistant professor at the Faculty of Technology, Policy, and Management of TU Delft, Netherlands and a research fellow at the Department of Mechanical Engineering, KU Leuven, Belgium. His research interests include market design, policies, and regulation for integrated energy systems. Johan Meyers is a professor of mechanical engineering at KU Leuven since 2009. His research focuses on the simulation of turbulent flows and the atmospheric boundary layer with applications in wind energy. In 2012, he obtained an ERC grant on wind farm control and has been involved in various European projects on wind energy since. He served as the vice president of the European Academy of Wind Energy from 2017 to 2019 and as its president from 2019 to end of 2021. He has been active as an associate editor for Computers & Fluids and is currently an associate editor for Wind Energy Science. Erik Delarue received MSc and PhD degrees in mechanical engineering from the University of Leuven, Belgium, in 2005 and 2009, respectively. He is currently an associate professor with the University of Leuven, TME Branch (energy conversion) and active with EnergyVille. His research focus and expertise are on quantitative tools, supporting an efficient operation of, and transition toward, a low-carbon energy system (mathematical modeling of energy systems). Applications relate to flexibility through energy systems integration, market design, and energy policies.@en