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Spatial peak-load pricing

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  • Arellano, M. Soledad
  • Serra, Pablo

Abstract

This article extends the traditional electricity peak-load pricing model to include transmission costs. In the context of a two-node, two-technology electric power system, where suppliers face inelastic demand, we show that when the marginal plant is located at the energy-importing center, generators located away from that center should pay the marginal capacity transmission cost; otherwise, consumers should bear this cost through capacity payments. Since electric power transmission is a natural monopoly, marginal-cost pricing does not fully cover costs. We propose distributing the revenue deficit among users in proportion to the surplus they derive from the service priced at marginal cost.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 29 (2007)
Issue (Month): 2 (March)
Pages: 228-239

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Handle: RePEc:eee:eneeco:v:29:y:2007:i:2:p:228-239

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References

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  1. Chao, Hung-Po & Peck, Stephen, 1996. "A Market Mechanism for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 10(1), pages 25-59, July.
  2. Neufeld, John L., 1987. "Price Discrimination and the Adoption of the Electricity Demand Charge," The Journal of Economic History, Cambridge University Press, vol. 47(03), pages 693-709, September.
  3. Oren, Shmuel S. & Spiller, Pablo T. & Varaiya, Pravin & Wu, Felix, 1995. "Nodal prices and transmission rights: A critical appraisal," The Electricity Journal, Elsevier, vol. 8(3), pages 24-35, April.
  4. Hogan, William W., 2003. "Transmission Market Design," Working Paper Series rwp03-040, Harvard University, John F. Kennedy School of Government.
  5. Yves Balasko, . "Theoretical Perspectives on three Issues of Electricity Economics," GSIA Working Papers 2001-E18, Carnegie Mellon University, Tepper School of Business.
  6. Ronald Fischer & Pablo Serra, 2001. "Energy prices in the presence of plant indivisibilities," Documentos de Trabajo 108, Centro de Economía Aplicada, Universidad de Chile.
  7. Crew, Michael A & Fernando, Chitru S & Kleindorfer, Paul R, 1995. "The Theory of Peak-Load Pricing: A Survey," Journal of Regulatory Economics, Springer, vol. 8(3), pages 215-48, November.
  8. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-42, September.
  9. José Pablo Arellano, 2004. "Principios para Tarificar la Transmisión Eléctrica," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 41(123), pages 231-253.
  10. Claude Crampes & Jean-Jaques Laffont, 2001. "Transport Pricing in the Electricity Industry," Oxford Review of Economic Policy, Oxford University Press, vol. 17(3), pages 313-328.
  11. Green, Richard, 1997. "Electricity transmission pricing: an international comparison," Utilities Policy, Elsevier, vol. 6(3), pages 177-184, September.
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Cited by:
  1. Frank Limehouse & Michael Maloney & Kurt Rotthoff, 2012. "Peak-Load Versus Discriminatory Pricing: Evidence from the Golf Industry," Review of Industrial Organization, Springer, vol. 40(3), pages 151-165, May.

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