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Nodal pricing of electricity: how much does it cost to get it wrong?

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Author Info
Richard Green ()

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Abstract

Economists know how to calculate optimal prices for electricity transmission. These are rarely applied in practice. This paper develops a 13-node model of the transmission system in England and Wales, incorporating losses and transmission constraints. It is solved with optimal prices, and with uniform prices for demand and for generation, re-dispatching when needed to take account of transmission constraints. Moving from uniform prices to optimal nodal prices could raise welfare by 1.3% of the generators’ revenues, and would be less vulnerable to market power. It would also send better investment signals, but create politically sensitive regional gains and losses. Copyright Springer Science+Business Media, LLC 2007

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File URL: http://hdl.handle.net/10.1007/s11149-006-9019-3
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Publisher Info
Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 31 (2007)
Issue (Month): 2 (April)
Pages: 125-149
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Handle: RePEc:kap:regeco:v:31:y:2007:i:2:p:125-149

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Web page: http://www.springerlink.com/link.asp?id=100298

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Related research
Keywords: Electricity transmission pricing; Welfare losses; Market power; L94;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Hsu, Michael, 1997. "An introduction to the pricing of electric power transmission," Utilities Policy, Elsevier, vol. 6(3), pages 257-270, September. [Downloadable!] (restricted)
  2. Macatangay, Rafael Emmanuel A., 1998. "Space-time prices of wholesale electricity in England and Wales," Utilities Policy, Elsevier, vol. 7(3), pages 163-188, November. [Downloadable!] (restricted)
  3. Ehrenmann, A. & Neuhoff, K., 2003. "A Comparison of Electricity Market Designs in Networks," Cambridge Working Papers in Economics 0341, Faculty of Economics, University of Cambridge. [Downloadable!]
  4. Severin Borenstein & James. Bushnell & Steven Stoft, 2000. "The Competitive Effects of Transmission Capacity in A Deregulated Electricity Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 294-325, Summer.
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  5. Richard Gilbert & Neuhoff, K. & Newbery, D., 2002. "Allocating Transmission to Mitigate Market Power in Electricity Networks," Cambridge Working Papers in Economics 0225, Faculty of Economics, University of Cambridge. [Downloadable!]
  6. Cardell, Judith B. & Hitt, Carrie Cullen & Hogan, William W., 1997. "Market power and strategic interaction in electricity networks," Resource and Energy Economics, Elsevier, vol. 19(1-2), pages 109-137, March. [Downloadable!] (restricted)
  7. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-42, September.
  8. Ilic, Marija D. & Yoon, Yong T. & Zobian, Assef & Paravalos, Mary Ellen, 1997. "Toward regional transmission provision and its pricing in New England," Utilities Policy, Elsevier, vol. 6(3), pages 245-256, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Vincent Rious & Jean-Michel Glachant & Yannick Perez & Philippe Dessante, 2008. "The diversity of design of TSOs," Post-Print hal-00318518_v1, HAL. [Downloadable!]
    Other versions:
  2. Vincent Rious & Yannick Perez & Philippe Dessante, 2008. "The efficiency of short run and long run locational signals to coordinate generation location with lumpy transmission investments," Post-Print hal-00339505_v1, HAL. [Downloadable!]
  3. Vincent Rious & Yannick Perez & Philippe Dessante, 2008. "Is combination of nodal pricing and average participation tariff the best solution to coordinate the location of power plants with lumpy transmission investments?," Post-Print hal-00323878_v1, HAL. [Downloadable!]
    Other versions:
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