2 ms·

Not pricing transmission in the price of EU power likely is more of a market design issue rather than a technical one given that the U.S markets have been doing

by chardz 2mo ago

Not pricing transmission in the price of EU power likely is more of a market design issue rather than a technical one given that the U.S markets have been doing this since they liberalized 30 years ago (though yes, everything will be priced according to linearized power flow in order to make things feasible to solve). Wonder if it’s more of a political question in the EU with how to handle cross border flows (even U.S markets have/have had issues with modeling this, see PJM/MISO seams modeling)

stymaar 2mo ago
It's not about border, I'm talking about power flow through Germany. And of course it's a market design issue, but as I said above, the problem is that you'll always face market design issues because the market designers face an impossible problem: you want to use a simple enough model and you're modeling an insanely complex problem for which any discrepancy between the model and reality will result in a catastrophic failure unless you have a central authority there to patch the holes. At the end of the day, it's always going to be a centrally-managed system (because you cannot afford blackouts) but with the central planner merely swallowing the cost of the economic inefficiency rather than preventing it.
- chardz 1mo ago
  I mean, I guess I disagree that you need anything close to a perfect model. You will get many of the benefits of the correct solution by using linearized power flow with nodal pricing and explicitly modeling transmission constraints (and by extension, redispatch). Afaik, Germany doesn’t do this, but as you had described earlier, redispatch costs are physical in nature and obviously still exist, they just aren’t reflected in prices. This is very dumb. Suppose a new generator wants to know which is the best node to interconnect to. This should be obvious from nodal pricing, as you would simply check the node that has the highest INC redispatch/lowest congestion costs (the nodes in the south of Germany in your example). Similarly, the worst node to connect to will be the one with the highest DEC redispatch/highest congestion costs (the North). Instead, in the current german system, I would think you would need to do some contrived thing of figuring out which generators are getting the highest uplift payments, but this would be very imperfect as you would not know how sensitive a different node would be to the system redispatch (not to mention, this is assuming this information is even readily published). There’s really no excuse to not adopt nodal pricing over whatever exists for a centrally planned grid operator. I can only really imagine it’s a political issue.
  - stymaar 1mo ago
    > I mean, I guess I disagree that you need anything close to a perfect model. It's an adversarial setting, economic actors are incentivized to find any loophole and exploit them, so even if it doesn't need to be perfect it needs to be indistinguishable from perfection from the PoV of the market actors, otherwise the defects will be weaponized.

by chardz 2mo ago

stymaar 2mo ago

It's not about border, I'm talking about power flow through Germany. And of course it's a market design issue, but as I said above, the problem is that you'll always face market design issues because the market designers face an impossible problem: you want to use a simple enough model and you're modeling an insanely complex problem for which any discrepancy between the model and reality will result in a catastrophic failure unless you have a central authority there to patch the holes. At the end of the day, it's always going to be a centrally-managed system (because you cannot afford blackouts) but with the central planner merely swallowing the cost of the economic inefficiency rather than preventing it.

chardz 1mo ago
I mean, I guess I disagree that you need anything close to a perfect model. You will get many of the benefits of the correct solution by using linearized power flow with nodal pricing and explicitly modeling transmission constraints (and by extension, redispatch). Afaik, Germany doesn’t do this, but as you had described earlier, redispatch costs are physical in nature and obviously still exist, they just aren’t reflected in prices. This is very dumb. Suppose a new generator wants to know which is the best node to interconnect to. This should be obvious from nodal pricing, as you would simply check the node that has the highest INC redispatch/lowest congestion costs (the nodes in the south of Germany in your example). Similarly, the worst node to connect to will be the one with the highest DEC redispatch/highest congestion costs (the North). Instead, in the current german system, I would think you would need to do some contrived thing of figuring out which generators are getting the highest uplift payments, but this would be very imperfect as you would not know how sensitive a different node would be to the system redispatch (not to mention, this is assuming this information is even readily published). There’s really no excuse to not adopt nodal pricing over whatever exists for a centrally planned grid operator. I can only really imagine it’s a political issue.
- stymaar 1mo ago
  > I mean, I guess I disagree that you need anything close to a perfect model. It's an adversarial setting, economic actors are incentivized to find any loophole and exploit them, so even if it doesn't need to be perfect it needs to be indistinguishable from perfection from the PoV of the market actors, otherwise the defects will be weaponized.