Pricing schemes in the European power markets

Electricity pylons at Raitersaich substation, Roßtal, Germany
The European countries face great challenges in predicting the real-time power flow because of the promotion of renewable energy and the integration of different national markets, according to PhD Candidate Hong Cai. Photo: Electricity pylons at Raitersaich substation, Roßtal, Germany (wikimedia).
PhD Defense

12 October 2018 10:34

Pricing schemes in the European power markets

On Friday 26 October 2018 Hong Cai will hold a trial lecture on a prescribed topic and defend her thesis for the PhD degree at NHH.

Hong Cai, PhD Candidate at the Department of Department of Business and Management Science.
Hong Cai, PhD Candidate at the Department of Department of Business and Management Science.

Prescribed topic for the trial lecture:

Financial transmission rights in a nodal pricing system and relevance for mixed nodal and zonal systems.

Trial lecture:

10:15 in Jebsen-senteret., NHH

Title of the thesis:

«Essays on the European Electricity Markets»


In the European electricity market, the power prices in different regions are coupled in order to achieve an efficient utilization of resources, including transmission capacities of the grid. In this setting, the promotion of renewable and intermittent energy sources leads to increased problems in predicting power flows for the system operators, such as Statnett. The pricing scheme presently used, so-called zonal pricing, uses highly simplified models to represent the power flows.

Hong Cai's dissertation discusses alternative pricing schemes, and it explores the possibilities and outcomes of applying these schemes in the European power markets.

The first chapter introduces the research background and gives a review of the following four chapters.

The second chapter introduces hybrid pricing as a potential market clearing model, where part of the system applies zonal pricing, and the rest applies nodal pricing. It further examines, using a simplified 13-node example, whether the system could gain by applying hybrid pricing.

The third chapter uses a more realistic model of Germany, Poland, Slovakia and the Czech Republic and investigates whether a country could benefit from using nodal pricing when domestic network transmission to a large extent is influenced by generation of renewable energy in the neighboring countries. Compared to full nodal pricing, hybrid pricing fails to fully utilize all the resources in the network and some wrong price signals might be given. However, hybrid pricing still performs better than zonal pricing.

The fourth chapter discusses the Flow-Based Market Coupling (FBMC) model which has been introduced in the European market recently. The chapter discusses the difficulties that might arise when implementing this model. It also finds that a higher social surplus in the day-ahead market might come at the cost of more re-dispatching, and that the new scheme may not utilize resources more efficiently than the present Available Transfer Capacity (ATC) model.

The last chapter examines, using a simulatation based on a standard test case from the literature, how the bidding zone configurations can affect the performance of both the FBMC and ATC models.


12:15 in Jebsen-senteret., NHH

Members of the evaluation committee:

Administrative Manager Linda Rud (leader of the committee), NHH

Professor Asgeir Tomasgard, NTNU

Professor Yves Smeers, Université Catholique de Louvain


Associate Professor Endre Bjørndal, Department of Business and Management Science, NHH

The trial lecture and thesis defence will be open to the public. Copies of the thesis will be available from