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An equivalent marginal cost-pricing model for the district heating market

Author

Listed:
  • Zhang, Junli
  • Ge, Bin
  • Xu, Hongsheng

Abstract

District heating pricing is a core element in reforming the heating market. Existing district heating pricing methods, such as the cost-plus pricing method and the conventional marginal-cost pricing method, cannot simultaneously provide both high efficiency and sufficient investment cost return. To solve this problem, the paper presents a new pricing model, namely Equivalent Marginal Cost Pricing (EMCP) model, which is based on the EVE pricing theory and the unique characteristics of heat products and district heating. The EMCP model uses exergy as the measurement of heating product value and places products from different district heating regions into the same competition platform. In the proposed model, the return on investment cost is closely related to the quoted cost, and within the limitations of the Heating Capacity Cost Reference and the maximum compensated shadow capacity cost, both lower and higher price speculations of heat producers are restricted. Simulation results show that the model can guide heat producers to bid according to their production costs and to provide reasonable returns on investment, which contributes to stimulate the role of price leverage and to promote the optimal allocation of heat resources.

Suggested Citation

  • Zhang, Junli & Ge, Bin & Xu, Hongsheng, 2013. "An equivalent marginal cost-pricing model for the district heating market," Energy Policy, Elsevier, vol. 63(C), pages 1224-1232.
  • Handle: RePEc:eee:enepol:v:63:y:2013:i:c:p:1224-1232
    DOI: 10.1016/j.enpol.2013.09.017
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    References listed on IDEAS

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    1. Korppoo, Anna & Korobova, Nina, 2012. "Modernizing residential heating in Russia: End-use practices, legal developments, and future prospects," Energy Policy, Elsevier, vol. 42(C), pages 213-220.
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    Cited by:

    1. Song, Jingjing & Wallin, Fredrik & Li, Hailong, 2017. "District heating cost fluctuation caused by price model shift," Applied Energy, Elsevier, vol. 194(C), pages 715-724.
    2. repec:ura:ecregj:v:1:y:2018:i:1:p:137-149 is not listed on IDEAS
    3. Li, Hailong & Sun, Qie & Zhang, Qi & Wallin, Fredrik, 2015. "A review of the pricing mechanisms for district heating systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 42(C), pages 56-65.
    4. Tang, Ling & Wu, Jiaqian & Yu, Lean & Bao, Qin, 2017. "Carbon allowance auction design of China's emissions trading scheme: A multi-agent-based approach," Energy Policy, Elsevier, vol. 102(C), pages 30-40.

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