Importance of design parameters on flowbased market coupling implementation

The paper looks into how different design parameters influence the outcome of flowbased market coupling (FBMC). FBMC is currently being developed as the future market design for congestion management for Central West and Central East Europe (CWE and CEE) regions. The market design defines how interconnection capacity between two price zones is being calculated and allocated to the market. In theory FBMC possesses several advantages when compared to the currently in place ATC-based calculation and allocation methods. The level of efficiency, non-discrimination and market orientation of FBMC is dependent on different parameters that are being applied. The most important parameters that have been brought up in discussions on FBMC implementation in the CWE region are the selection of critical branches (CB), the flow reliability margin (FRM), generation shift key (GSK), and remedial actions. This paper analyses the potential impact of FRM (linked to the zone size) and GSK on FBMC. Through a simplified model various aspects of FBMC are introduced. The impact of zone definition is assessed applying this model. The analysis shows that smaller and more numerous zones lead to lower margins (FRM) and reduced uncertainty. Next, the choice of GSKs is shown to impact market equilibrium of FBMC and consequently its prices.