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Spatial peak-load pricing

  • Arellano, M. Soledad
  • Serra, Pablo

This article extends the traditional electricity peak-load pricing model to include transmission costs. In the context of a two-node, two-technology electric power system, where suppliers face inelastic demand, we show that when the marginal plant is located at the energy-importing center, generators located away from that center should pay the marginal capacity transmission cost; otherwise, consumers should bear this cost through capacity payments. Since electric power transmission is a natural monopoly, marginal-cost pricing does not fully cover costs. We propose distributing the revenue deficit among users in proportion to the surplus they derive from the service priced at marginal cost.

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File URL: http://www.sciencedirect.com/science/article/B6V7G-4HRMV3C-2/2/8c9fd7ec6fbe3dedf99d505ab20b6cfa
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Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 29 (2007)
Issue (Month): 2 (March)
Pages: 228-239

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Handle: RePEc:eee:eneeco:v:29:y:2007:i:2:p:228-239
Contact details of provider: Web page: http://www.elsevier.com/locate/eneco

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  1. Neufeld, John L., 1987. "Price Discrimination and the Adoption of the Electricity Demand Charge," The Journal of Economic History, Cambridge University Press, vol. 47(03), pages 693-709, September.
  2. Chao, Hung-Po & Peck, Stephen, 1996. "A Market Mechanism for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 10(1), pages 25-59, July.
  3. Yves Balasko, . "Theoretical Perspectives on three Issues of Electricity Economics," GSIA Working Papers 2001-E18, Carnegie Mellon University, Tepper School of Business.
  4. Green, Richard, 1997. "Electricity transmission pricing: an international comparison," Utilities Policy, Elsevier, vol. 6(3), pages 177-184, September.
  5. Hogan, William W., 2003. "Transmission Market Design," Working Paper Series rwp03-040, Harvard University, John F. Kennedy School of Government.
  6. Claude Crampes & Jean-Jaques Laffont, 2001. "Transport Pricing in the Electricity Industry," Oxford Review of Economic Policy, Oxford University Press, vol. 17(3), pages 313-328.
  7. Ronald Fischer & Pablo Serra, 2001. "Energy prices in the presence of plant indivisibilities," Documentos de Trabajo 108, Centro de Economía Aplicada, Universidad de Chile.
  8. José Pablo Arellano, 2004. "Principios para Tarificar la Transmisión Eléctrica," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 41(123), pages 231-253.
  9. Crew, Michael A & Fernando, Chitru S & Kleindorfer, Paul R, 1995. "The Theory of Peak-Load Pricing: A Survey," Journal of Regulatory Economics, Springer, vol. 8(3), pages 215-48, November.
  10. Oren, Shmuel S. & Spiller, Pablo T. & Varaiya, Pravin & Wu, Felix, 1995. "Nodal prices and transmission rights: A critical appraisal," The Electricity Journal, Elsevier, vol. 8(3), pages 24-35, April.
  11. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-42, September.
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