Marginal cost reflectivity Sample Clauses

Marginal cost reflectivity. In Zonal pricing, the net supply curve within each zone is built up from the existing offers and bids within this zone independently of the geographical location of generation and demand within this zone. Net supply curves per zone shall be considered together with network constraints to compute power exchanges among these zones. For a given set of exchanges among zones, the price is then determined as the highest offer (and marginal cost) that must be accepted to yield sufficient supply in the zone. In other words, the price in each zone is typically set equal to the most expensive accepted offer required to supply load in the corresponding zone. This is supposed to represent the corresponding marginal supply cost. However, differences in the marginal supply cost within each zone are not reflected in prices. This is especially critical in Europe, where defining large enough zones within which no relevant congestion exists may prove to be very challenging. Then, the grade for this option is Fair. The marginal pricing principle is also applied under Hybrid zonal pricing and in the Single node dispatch + re-dispatch. The only difference among all these schemes in this regard lies in the size of considered zones in the clearing process, which is larger than under zonal pricing for the single node dispatch and smaller for hybrid zonal pricing. Prices in the latter case are more appropriate to reflect spatial differences in marginal supply costs. Then, the grade for Hybrid zonal pricing is Good, while the grade for the Single node dispatch + re-dispatch is Poor. As explained previously, Nodal prices are shadow prices computed in an optimization problem where total costs are minimized. Thus, under this scheme, differences in local cost structures, and marginal costs, are reflected through the computation of differentiated prices with high granularity. An important obstacle for implementing nodal pricing in practice is the possible increase in the level of market power by agents that this scheme may create, and its misuse. Under this scheme, many producers could create shortages locally if they tried to increase local prices. By cutting back supply, or through bidding above marginal costs, producers could then obtain high nodal prices and high profits. However, this issue is considered in the criterion "Liquidity". The grade of this option is Very good. Under Average zonal pricing, nodal prices are first calculated. However, flexible bids (producers and consumers...