Model for area price determination and congestion management in joint power markets

Alternative methodologies have been proposed where power flow calculations are included, and the main purpose of this paper is to present a simulation model which can be used to assess alternative methods for congestion management. The paper describes a simulation model where the flow based market coupling method is implemented and demonstrated. This method can be seen as a compromise between nodal pricing and market splitting (area pricing), where the criterion for congestion management is minimization of the socio-economic congestion cost. The main principles for the proposed model are described, and case studies are performed on a generic system model in order to highlight the main characteristics of the method, and to summarise the main benefits and challenges that remain for a practical implementation of the flow based market coupling method. The case studies show that the method has the potential to solve the congestion management problem in a way that is optimal from a socio-economic point of view. The total costs of congestions are minimized, and the maximum differences in area prices are normally reduced. As a consequence the transmission system utilization is improved and the market players´ risk referred to area prices is reduced. However, a successful implementation of the method depends heavily on the power flow model that is applied. It is of vital importance that this model is sufficiently accurate and continuously updated to predict the actual power flows on the main cross-border transmission corridors