Is combination of nodal pricing and average participation tariff the best solution to coordinate the location of power plants with lumpy transmission investments?
AbstractThis paper evaluates the opportunity and efficiency to introduce a two-part tariff to coordinate the location of power plants with lumpy transmission investments. Nodal pricing sends the short run component of such a two-part tariff and we study the case where the average participation tariff sends the long run one. We argue that this solution is helpful because the average participation tariff tackles lumpiness of transmission capacity while being as cost-reflective as possible. Our proposition is evaluated based on a double optimization model where a TSO minimizes the transmission cost while a generator minimizes its own cost that may take into account network constraints and include the average participation tariff. Numerical simulations are performed on a two-node network evolving during twenty years with increasing demand. The joint implementation of nodal pricing and the average participation tariff stays the best combination to coordinate as efficiently as possible the generation and transmission investments, although the optimal set of generation and transmission investments may not be reached because of transmission lumpiness. The simulations show also that implementing locational network tariffs is prioritary over implementing nodal pricing to coordinate more efficiently the location of generation with lumpy transmission investment. In the considered examples, the average participation tariff allows a more efficient location of generation even when the congestion management scheme being redispatch sends no short run locational signal.
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Bibliographic InfoPaper provided by HAL in its series Post-Print with number hal-00323878.
Date of creation: 2008
Date of revision:
Publication status: Published - Presented, The Economics of Energy Market, 2008, Toulouse, France
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Generation investment; Lumpy transmission investment; Long run coordination; Locational signals; Efficiency evaluation;
Other versions of this item:
- Vincent Rious & Philippe Dessante & Yannick Perez, 2009. "Is combination of nodal pricing and average participation tariff the best solution to coordinate the location of power plants with lumpy transmission investments?," RSCAS Working Papers 2009/14, European University Institute.
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-29 (All new papers)
- NEP-CMP-2008-09-29 (Computational Economics)
- NEP-ENE-2008-09-29 (Energy Economics)
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