Modelling the EU Internal Electricity Market: The PRIMES-IEM Model

The paper presents a newly built model used to simulate the European Union (EU) internal electricity market and assess market reform policies. The model performs an hourly simulation of all stages of the wholesale markets at a Pan-European scale, covering the sequence of day-ahead, intra-day, and balancing/reserve auctions. The model includes market coupling in all market stages, estimates scarcity bidding by generators endogenously, and determines electricity trade as a flow-based allocation of interconnections via the market auctions implicitly. The model solves a unit-commitment program, formulated as a mixed-integer optimisation problem, under demand and generation constraints, interconnection possibilities, technical restrictions of the cyclic operation of power plants, and the provision of ancillary services. The novelty of this approach is the inclusion of distortions in all stages of the markets to evaluate the impacts of their removal, and the operation of the markets in a segmented versus an integrated manner in the EU. The model calculates revenues and costs per power plant in the EU on a country basis and the value of cross-border flows. The model evaluated market reform measures, including the abolishment of priority dispatch of renewable energy plants, the establishment of flow-based allocation of interconnectors without NTC limitations, the activation of demand response, and the market coupling in intra-day markets. The model application has been in the context of the electricity market design initiative included in the “Clean Energy for all Europeans” policy package proposed by the European Commission in 2016.