Locational Pricing for the Energy Transition: Evaluating Nodal Market Design in the German Power System
(2025) NEKN01 20251Department of Economics
- Abstract
- Germanys transition to high shares of variable renewable energy (VRE) is increasingly ex-posing flaws in the country’s current electricity market design, particularly in its contin-ued use of nationally uniform wholesale pricing. This thesis investigates whether nodal pricing, where electricity prices vary locationally to reflect physical system conditions, can improve market efficiency and support VRE integration. A linear optimisation model simulates dispatch under nodal and uniform pricing across a stylised six-node represen-tation of the German electricity system, tested across different demand and weather scenarios. Results highlight how the growing misalignment between decentralised gen-eration expansion and delayed transmission... (More)
- Germanys transition to high shares of variable renewable energy (VRE) is increasingly ex-posing flaws in the country’s current electricity market design, particularly in its contin-ued use of nationally uniform wholesale pricing. This thesis investigates whether nodal pricing, where electricity prices vary locationally to reflect physical system conditions, can improve market efficiency and support VRE integration. A linear optimisation model simulates dispatch under nodal and uniform pricing across a stylised six-node represen-tation of the German electricity system, tested across different demand and weather scenarios. Results highlight how the growing misalignment between decentralised gen-eration expansion and delayed transmission investment undermines the effectiveness of uniform pricing. Nodal pricing reduces system cost in high-VRE scenarios, while providing locational investment signals. These findings suggest that nodal pricing offers a more adaptive and transparent market design for managing the energy transition, though challenges around political implementation and equity remain. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/9194695
- author
- Eickholt, Imke Pauline Veronika LU
- supervisor
- organization
- course
- NEKN01 20251
- year
- 2025
- type
- H2 - Master's Degree (Two Years)
- subject
- keywords
- Nodal Pricing, Electricity Market Design, Variable Renewable Energy, Investment Signals, Renewable Integration
- language
- English
- id
- 9194695
- date added to LUP
- 2025-09-12 10:06:59
- date last changed
- 2025-09-12 10:06:59
@misc{9194695,
abstract = {{Germanys transition to high shares of variable renewable energy (VRE) is increasingly ex-posing flaws in the country’s current electricity market design, particularly in its contin-ued use of nationally uniform wholesale pricing. This thesis investigates whether nodal pricing, where electricity prices vary locationally to reflect physical system conditions, can improve market efficiency and support VRE integration. A linear optimisation model simulates dispatch under nodal and uniform pricing across a stylised six-node represen-tation of the German electricity system, tested across different demand and weather scenarios. Results highlight how the growing misalignment between decentralised gen-eration expansion and delayed transmission investment undermines the effectiveness of uniform pricing. Nodal pricing reduces system cost in high-VRE scenarios, while providing locational investment signals. These findings suggest that nodal pricing offers a more adaptive and transparent market design for managing the energy transition, though challenges around political implementation and equity remain.}},
author = {{Eickholt, Imke Pauline Veronika}},
language = {{eng}},
note = {{Student Paper}},
title = {{Locational Pricing for the Energy Transition: Evaluating Nodal Market Design in the German Power System}},
year = {{2025}},
}