Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

Abstract: The Nordic electricity market experienced extremely high prices during the winter 2009/2010. Using real data from the peak price hours the zonal solution from the Nordic market is replicated and compared to the nodal price solution when the central grid and its physical characteristics are explicitly modelled. Demand elasticity is introduced to the bid curves and its effect on prices and network utilisation is studied for the nodal solution. The sensitivity of the zonal solution to the changes in aggregate transfer capacities is investigated. The results demonstrate that better system utilisation is possible without capacity expansion. Nodal pricing solutions compared to the actual zonal pricing mechanism give insights into how the system functions in strained capacity situations and what hinders a more efficient system utilisation.

Keywords: Nordic power market; effects of pricing; demand elasticity; transmission capacities; nodal pricing; zonal pricing

JEL-codes: Q00

30 pages, February 13, 2015

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