Application of Zonal Pricing in Greece's Electricity Market

Greece's electricity market is divided in two zones, North and South, due to a generation-consumption system configuration that creates a significant transmission bottleneck from North to South. Clearly, a zonal pricing approach for energy provides the right incentive for the installation of new generation near consumption, if the zonal configuration reflects actual system and operational conditions. In this paper, we extend the zonal approach to include the time response-based ancillary services (also called "reserves"), which are commodities that are traded in the day-ahead market and are co-optimized with energy. We focus on the Day-Ahead Scheduling (DAS) market problem, which we formulate as a Security-Constrained Unit-Commitment problem whose objective is to co-optimize energy and reserves, taking into account the generation units' commitment costs. We model the DAS market problem as a Mixed-Integer Linear Programming problem that is solved every day, simultaneously for all 24 hours of the next day. Dual analysis of the problem and calculation of shadow prices provides useful insight on how prices for each commodity are set in the presence of binding resource, transmission or zonal reserve constraints. We use a simplified model of the Greek electricity system that includes only thermal plants to illustrate the developed methodology, the resulting market solutions and unit schedules, and the energy and ancillary services marginal prices. We also analyze and discuss issues such as the interaction between the commodities of energy and ancillary services under the marginal pricing approach.