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A Tracing Method for Pricing Inter-Area Electricity Trades

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Author Info

  • Kattuman, P.A.
  • Green, R.J.
  • Bialek, J.W.

Abstract

In the context of liberalisation of electricity markets world wide, the need for agreed protocols for electricity trades between systems with different charges poses a special challenge. System operators need to know how much a given trade uses the network, in order to allocate an appropriate portion of their costs to that trade. This paper discusses a technique, tracing, for determining how much each of a number of trades uses different parts of the electricity network. The scheme is based on the assumption that at any network node, inflows are shared proportionally between outflows (and vice versa). The paper outlines the technique and shows how it could be applied to the problem of charging cross-border trades. The paper goes on to demonstrate that the technique has a game theoretic rationale, in that it produces the Shapley value solution to a game equivalent to this allocation problem.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/wp0107.pdf
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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0107.

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Length: 23
Date of creation: Jun 2001
Date of revision:
Handle: RePEc:cam:camdae:0107

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Related research

Keywords: deregulation; transmission loss; pricing; co-operative games;

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References

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  1. S. C. Littlechild & G. Owen, 1973. "A Simple Expression for the Shapley Value in a Special Case," Management Science, INFORMS, INFORMS, vol. 20(3), pages 370-372, November.
  2. Martin Shubik, 1962. "Incentives, Decentralized Control, the Assignment of Joint Costs and Internal Pricing," Management Science, INFORMS, INFORMS, vol. 8(3), pages 325-343, April.
  3. Castano-Pardo, Alberto & Garcia-Diaz, Alberto, 1995. "Highway cost allocation: An application of the theory of nonatomic games," Transportation Research Part A: Policy and Practice, Elsevier, Elsevier, vol. 29(3), pages 187-203, May.
  4. Richard Green, 2004. "Electricity Transmission Pricing: How much does it cost to get it wrong?," Working Papers, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research 0420, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  5. Aadland, David & Kolpin, Van, 1998. "Shared irrigation costs: An empirical and axiomatic analysis," Mathematical Social Sciences, Elsevier, Elsevier, vol. 35(2), pages 203-218, March.
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Cited by:
  1. Brunekreeft, G., 2003. "Market-based Investment in Electricity Transmission Networks: Controllable Flow," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0340, Faculty of Economics, University of Cambridge.

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