Modeling zonal exchanges and nodal system representation in multi-zonal spot electricity markets

A novel model for the solution of the flow-based market coupling problem in multi-zonal spot electricity markets with zonal exchanges is presented in this paper. The problem considers a hybrid network configuration, i.e. a zonal market layer with zonal portfolio offers / bids submitted by the participants and zonal market clearing prices, and a nodal physical layer with nodal representation of the transmission system flows and relevant constraints. The model provides the optimal supply / demand cleared quantities and zonal exchanges, endogenously bounded by grid physical constraints, e.g. branch physical limits. The model retains the intuitiveness of the zonal exchanges, namely exchanges are cleared only from low-price zones to high-price zones. The model exhibits a dynamic/optimal allocation of zonal to nodal volumes. This market setup is fully compliant with the current market design in Europe, where portfolio participation in spot market with zonal prices, intuitive exchanges and with nodal flow-based constraints is the preferred scheme of the European Commission based on Regulation 2015/1222. The model is compared in terms of overall social welfare, pricing and cleared exchanges with the currently applied approach in Europe plus a "tuning" model for the simulation of redispatching to avoid congestion in physical branches.