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Calculating the marginal costs of a district-heating utility

Listed author(s):
  • Sjödin, Jörgen
  • Henning, Dag
Registered author(s):

    District heating plays an important role in the Swedish heat-market. At the same time, the price of district heating varies considerably among different district-heating utilities. A case study is performed here in which a Swedish utility is analysed using three different methods for calculating the marginal costs of heat supply: a manual spreadsheet method, an optimising linear-programming model, and a least-cost dispatch simulation model. Calculated marginal-costs, obtained with the three methods, turn out to be similar. The calculated marginal-costs are also compared to the actual heat tariff in use by the utility. Using prices based on marginal costs should be able to bring about an efficient resource-allocation. It is found that the fixed rate the utility uses today should be replaced by a time-of-use rate, which would give a more accurate signal for customers to change their heat consumptions.

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    Article provided by Elsevier in its journal Applied Energy.

    Volume (Year): 78 (2004)
    Issue (Month): 1 (May)
    Pages: 1-18

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    Handle: RePEc:eee:appene:v:78:y:2004:i:1:p:1-18
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    1. Schramm, Gunter, 1991. "Marginal cost pricing revisited," Energy Economics, Elsevier, vol. 13(4), pages 245-249, October.
    2. Della Valle, Anna P., 1988. "Short-run versus long-run marginal cost pricing," Energy Economics, Elsevier, vol. 10(4), pages 283-286, October.
    3. Verbruggen, Aviel, 1983. "Cogeneration -- allocation of joint costs," Energy Policy, Elsevier, vol. 11(2), pages 171-176, June.
    4. Nilsson, K. & Söderström, M., 1993. "Industrial applications of production planning with optimal electricity demand," Applied Energy, Elsevier, vol. 46(2), pages 181-192.
    5. Andersson, M., 1994. "Shadow prices for heat generation in time-dependent and dynamic energy systems," Energy, Elsevier, vol. 19(12), pages 1205-1211.
    6. Sherali, Hanif D. & Soyster, Allen L. & Murphy, Frederic H. & Sen, Suvrajeet, 1982. "Linear programming based analysis of marginal cost pricing in electric utility capacity expansion," European Journal of Operational Research, Elsevier, vol. 11(4), pages 349-360, December.
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