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In an era of energy transition, it is crucial to ensure that the design of the short-term electricity market provides sufficient cash flows to producers so as to allow the investment of the right technology at the right location. In this paper, we revisit the question of capacity allocation in zonal markets from a long-term perspective. We model the capacity expansion problem in zonal markets in which inter-zonal transmission capacity allocation is organized through flow-based market coupling, which is an approximation of power flow equations in aggregate networks that is employed in European market design. We demonstrate that the classical result of equivalence between centralized and decentralized formulations in transmission-constrained markets ceases to hold in this case. We propose a model of the decentralized capacity expansion problem with flow-based market coupling as a generalized Nash equilibrium that we formulate as a linear complementarity problem. We then perform simulations of the capacity expansion problem with nodal pricing and three variations of zonal pricing on a realistic instance of the Central Western European network and comment on the impacts of flow-based market coupling on investment.

The energy transition reveals a number of challenges for the planning and operation of electric power systems, many of which are the subject of active research. Among the open issues that relate to market design, one has been the subject of particularly intense debate in Europe since the liberalization: the market-based allocation of transmission capacity. Currently, the European electricity market is organized around the principle of zonal pricing, which is characterized by the delimitation of regions on the power network, that are called zones, inside which the electricity price is the same in the wholesale market. This principle is opposed to nodal pricing, in which the price is differentiated between every location. In this thesis, we present detailed models and algorithms for analyzing the efficiency of zonal pricing. In the first part, we focus on the short-term efficiency and, in particular, on the impacts of the optimization of the grid topology through transmission line switching for improving the efficiency of zonal pricing. The second part of the dissertation investigates the efficiency of zonal pricing in the long run, when investment decisions in generating capacity are accounted for. First, we propose a model of the long-run equilibrium of zonal pricing with flow-based market coupling, which is the current methodology used in practice in Europe for allocating transmission capacity. We show that this methodology introduces new inefficiencies in the context of capacity expansion. Then, we investigate whether additional locational instruments, such as capacity and energy-based signals or market-based re-dispatch, can restore the efficiency of investments in zonal pricing. For each of the three main contributions, we present simulation results of our models on a large-scale instance that represents the Central Western European network and we discuss the implications of our results for the performance of zonal electricity pricing., (FSA - Sciences de l'ingénieur) -- UCL, 2022