European Smart Power Market Project

The report finds that the EU's current regional/zonal pricing model impedes the integration of the 200 GW of new renewable energy needed by 2020 by limiting cross-border flows and failing to provide transparent investment signals. Through quantitative simulations, the authors demonstrate that a nodal pricing system would increase international power transfers by up to 34% and generate annual system variable cost savings between €0.8 billion and €2.0 billion, depending on wind power penetration.

• The existing EU power market design, which relies on regional or zonal pricing, creates several barriers to meeting carbon and energy targets: it limits cross-border flows due to how congestion is handled within countries, fails to provide investment signals that reflect the system state, and inefficiently incorporates variable energy sources due to a lack of system-wide information sharing.
• A nodal pricing approach is identified as the only market design capable of achieving full integration across five key areas: domestic congestion management, joint allocation of international transmission rights, day-ahead energy markets, intraday/balancing markets, and transparency of congestion management.
• Quantitative simulations of the ENTSO-E operating region indicate that nodal pricing would significantly improve network efficiency compared to the current EU model, increasing international megawatt (MW) transfers by up to 34% depending on wind penetration. This suggests that existing network capacity is sufficient for large volumes of intermittent energy if the market design is optimized.
• Implementing a nodal pricing structure would result in annual system variable cost savings (primarily fuel costs) ranging from €0.8 billion to €2.0 billion, which represents an average of 1.1% to 3.6% of operational costs. Additionally, weighted marginal prices would be lower in 60% to 75% of EU countries.

APA

Neuhoff, K. (2011). European Smart Power Market Project. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2011/12/Smart-Power-Market-Executive-Summary.pdf

Chicago

Neuhoff, Karsten. European Smart Power Market Project. Climate Policy Initiative, 2011. https://www.climatepolicyinitiative.org/wp-content/uploads/2011/12/Smart-Power-Market-Executive-Summary.pdf.

Wikipedia

{{cite report |last1=Neuhoff |first1=Karsten |title=European Smart Power Market Project |publisher=Climate Policy Initiative |date=February 2011 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2011/12/Smart-Power-Market-Executive-Summary.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{neuhoff2011european, author = {Neuhoff, Karsten}, title = {{European Smart Power Market Project}}, institution = {Climate Policy Initiative}, year = {2011}, month = feb, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2011/12/Smart-Power-Market-Executive-Summary.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }