Economic impacts of price spreads in the Nordic electricity markets

The zonal pricing model is applied in the Nordic electricity markets. A key element for the proper functioning of the zonal pricing model is transmission network adequacy. The insufficient network causes price spreads, which are against the initial target of the zonal pricing model. In addition, they may reduce the effective market size by enforcing the splitting of the market into smaller price zones. Difficulties in acquiring permits for the new transmission lines may affect the transmission system operators' (TSOs') possibilities to carry out necessary capacity additions. In this paper, the economic impacts of price spreads are calculated for electricity buyers, generators, and TSOs. The Nordic electricity market is used as an example, the calculations covering the years 2010-2012.