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Nodal pricing of electricity: 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 13-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 1.3% 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. Copyright Springer Science+Business Media, LLC 2007

Suggested Citation

  • 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.
    • Handle: RePEc:kap:regeco:v:31:y:2007:i:2:p:125-149
    DOI: 10.1007/s11149-006-9019-3
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    References listed on IDEAS

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    More about this item

    Keywords

    Electricity transmission pricing; Welfare losses; Market power; L94;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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