Decarbonizing the EU power system involves more than investment in generation and grid – it requires a smart power market as well.

A new study led by CPI shows that the current EU power market design does not effectively support European member states’ plan to connect 200GW of wind and solar power to the transmission system by 2020.  The current power market:

• does not use improvements in wind forecasts during the day to optimize European system dispatch, which would save costs and emissions;
• does not make effective use of network transmission capacity, thus increasing costs and risking delays for the connection of renewable energy generation; and
• does not create transparent signals about system constraints to inform transmission network investment decisions.

A review of various market systems across European countries and the USA revealed that nodal pricing systems (also known as locational marginal pricing), were the most effective in addressing these issues.

In a simulation study, the consortium compared the current European power market design against nodal pricing and found that adopting this best practice increases EU power transfers by 14-34% and provides operational savings from improved congestion management of €0.8 to €2.0 billion.

The CPI-led Smart Power Market project, supporting the EU Project Re-Shaping, involved participants from Ecofys, University of Cologne, PJM in the U.S., University of Cambridge, University of Durham, Universidad Pontificia Comillas, and Dresden University.

Related Event: CPI Berlin Workshop on the Role of Power Market Design