Flexible electricity market clearing zones

Zonal markets and nodal pricing are the dominant designs for liberalized electricity markets. We propose an alternative design that changes zones in each bidding period according to the estimated most efficient dispatch. These flexible electricity market clearing zones consider the grid's physical constraints to a larger degree than zonal markets but maintain their bidding simplicity and few price areas. We propose a proof-of-concept framework for flexible electricity market clearing zones, including a method to enumerate all zonal configurations. We illustrate the performance of this framework on a case study in the Nordic countries using flow-based market clearing (FBMC), considering a model for the day-ahead market and a real-time balancing market. Our results suggest that flexible electricity market clearing zones on sequential day-ahead and real-time balancing markets achieve costs slightly above nodal stochastic clearing. But, contrary to stochastic clearing, it can guarantee short-term revenue adequacy and cost recovery. Moreover, the flexible market design increases day-ahead market price levels and price variability at the nodal level, particularly in scenarios with high renewable generation, demonstrating its capacity to align price signals with network congestion and real-time supply conditions. Flexible electricity market clearing zones can thus facilitate the integration of renewables by enhancing system adaptability and promoting more efficient resource allocation. © 2024 The Authors