In many liberalized electricity markets uniform prices for large market areas are determined at the electricity spot market (the major platform being usually a power exchange). Potentially arising network congestion is then alleviated through a system of redispatch. This system is found for example in most European countries and Australia (whereas the US, Canada and New Zealand are relying on a system of nodal prices which does not require redispatch). Such a system does not provide incentives for proper location choice of production capacities taking into account potentially arising network congestion. Missing incentives for proper regional choice of producing facilities might then result in an excessive need of network expansion. To at least partially overcome this problem several countries are considering or already have introduced regionally differentiated network fees that have to be paid by generators as proposed for example by the Monopolies-Commission in Germany (Monopolkommission 2014) and as it is already used in the UK or Scandinavia. An overview about the application of g-components in European countries is given in ENTSO-E (2016). The objective of such regional mechanism is to better incentivize producers to locate closer to the load centers and thus leads to a potential reduction of congestion of the transmission grid. This in principle then allows to avoid excessive transmission line expansion.
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