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

Listed author(s):
  • Zhang, Junli
  • Ge, Bin
  • Xu, Hongsheng
Registered author(s):

    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.

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    Article provided by Elsevier in its journal Energy Policy.

    Volume (Year): 63 (2013)
    Issue (Month): C ()
    Pages: 1224-1232

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    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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    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.
    2. Nast, M. & Langniß, O. & Leprich, U., 2007. "Instruments to promote renewable energy in the German heat market—Renewable Heat Sources Act," Renewable Energy, Elsevier, vol. 32(7), pages 1127-1135.
    3. Poputoaia, Diana & Bouzarovski, Stefan, 2010. "Regulating district heating in Romania: Legislative challenges and energy efficiency barriers," Energy Policy, Elsevier, vol. 38(7), pages 3820-3829, July.
    4. Westin, Paul & Lagergren, Fredrik, 2002. "Re-regulating district heating in Sweden," Energy Policy, Elsevier, vol. 30(7), pages 583-596, June.
    5. Linden, Mikael & Peltola-Ojala, Päivi, 2010. "The deregulation effects of Finnish electricity markets on district heating prices," Energy Economics, Elsevier, vol. 32(5), pages 1191-1198, September.
    6. Sjödin, Jörgen & Henning, Dag, 2004. "Calculating the marginal costs of a district-heating utility," Applied Energy, Elsevier, vol. 78(1), pages 1-18, May.
    7. Söderholm, Patrik & Wårell, Linda, 2011. "Market opening and third party access in district heating networks," Energy Policy, Elsevier, vol. 39(2), pages 742-752, February.
    8. Difs, Kristina & Trygg, Louise, 2009. "Pricing district heating by marginal cost," Energy Policy, Elsevier, vol. 37(2), pages 606-616, February.
    9. Tsatsaronis, George, 2007. "Definitions and nomenclature in exergy analysis and exergoeconomics," Energy, Elsevier, vol. 32(4), pages 249-253.
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