Enlarging the Flow-Based Domain through Virtual Bidding Zones

The ongoing transformation of the European energy system, driven by renewable energy (RE) integration and sector coupling, creates challenges for electricity markets regarding cross-border trading, grid congestions and system stability. To enhance the efficiency of cross-border trading, the Flow-Based Market Coupling (FBMC) method was introduced and extended with the minimum trading capacities (minimum Remaining Available Margin, minRAM) concept. The introduction of minRAM facilitates the increase in trading volume but can lead to higher redispatch volumes and associated costs. This paper investigates the integration of virtual bidding zones, called Dispatch Hubs (DHs), as an alternative approach to align market design with physical grid constraints. Electricity market simulations demonstrate that DHs increase cross-border trading opportunities while considering local grid constraints. DHs achieve more moderate market improvements than minRAM, but indicate potential for better grid compatibility. Further research should quantify impacts on redispatch costs and overall welfare, while exploring improvements in DH configuration.