European Smart Power Market Project

This executive summary describes the 'European Smart Power Market Project', which evaluates how current EU power market designs affect the transition to low-carbon energy. The project argues that existing regional and zonal pricing models impede the integration of renewable energy and recommends a transition to nodal or locational marginal pricing (LMP) to optimize transmission capacity and reduce costs.

• The current EU power market design, which relies on regional and zonal pricing, is insufficient for the widespread adoption of several hundred gigawatts of intermittent power. Specifically, it fails to effectively use network transmission capacity, does not utilize daily wind forecast improvements to optimize system dispatch, and lacks transparent signals regarding system constraints for transmission investment.
• Implementing a nodal pricing (or locational marginal pricing) approach is identified as the only market design option capable of achieving full integration across five key areas: domestic congestion management, joint allocation of international transmission rights, integration with the day-ahead energy market, integration with intraday/balancing markets, and transparency of congestion management.
• Quantitative simulations indicate that a nodal pricing regime would increase international megawatt transfers between countries by up to 34% compared to the current EU model, depending on wind power penetration. This suggests that existing network capacity is sufficient to accommodate large volumes of intermittent energy sources.
• A nodal pricing structure could generate annual system variable cost savings (primarily fuel costs) between €0.8 billion and €2.0 billion, representing 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 under this regime.

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} }