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Electricity Transmission Pricing: How much does it cost to get it wrong?

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  • Richard Green

Abstract

Economists know how to calculate optimal prices for electricity transmission. These are rarely applied in practice. This paper develops a thirteen 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 1.5% 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.

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Bibliographic Info

Paper provided by Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research in its series Working Papers with number 0420.

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Date of creation: Sep 2004
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Handle: RePEc:mee:wpaper:0420

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Cited by:
  1. Rosellon, Juan & Tregear, Juan & Zenon, Eric, 2010. "El modelo HRV para expansión óptima de redes de transmisión: una aplicación a la red eléctrica de Ontario
    [The HRV Model for the Optimal Expansion of Transmission Networks: an Application to t
    ," MPRA Paper 26471, University Library of Munich, Germany.
  2. Pepermans, Guido & Willems, Bert, 2010. "Cost Recovery in Congested Electricity Networks," Working Papers 2010/22, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  3. Bernard, Jean-Thomas & Guertin, Chantal, 2002. "Nodal Pricing and Transmission Losses: An Application to a Hydroelectric Power System," Discussion Papers dp-02-34, Resources For the Future.
  4. Richard Green, 2007. "Nodal pricing of electricity: how much does it cost to get it wrong?," Journal of Regulatory Economics, Springer, vol. 31(2), pages 125-149, April.
  5. Joskow, Paul L., 2008. "Capacity payments in imperfect electricity markets: Need and design," Utilities Policy, Elsevier, vol. 16(3), pages 159-170, September.
  6. Kattuman, P.A. & Green, R.J. & Bialek, J.W., 2001. "A Tracing Method for Pricing Inter-Area Electricity Trades," Cambridge Working Papers in Economics 0107, Faculty of Economics, University of Cambridge.

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