Analysis of redispatch and transmission capacity pricing on a local electricity market setup

As the transition to more renewable energy sources progresses the regional generation clusters of wind and solar generation increase. Since the transmission capacity is limited we can observe an increasing need for redispatch measures in the German electricity grid to accommodate this development. In this paper we analyze the need and costs of redispatch measures and propose a local electricity market setup to create economic incentives for the expansion of generation capacity close to load centers. We introduce an analytical model to investigate small networks and a graph model simulation to deal with more sophisticated structures. We find that redispatch is especially relevant in networks with bottleneck transmission links and rather independent of the overall grid capacity. Furthermore, we argue that transmission capacity needs to be priced explicitly and that graph theory can help in investigating market mechanisms in electricity grids.