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A Tracing Method for Pricing Inter-Area Electricity Trades

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  • Kattuman, P.A.
  • Green, R.J.
  • Bialek, J.W.

Abstract

In the context of liberalisation of electricity markets world wide, the need for agreed protocols for electricity trades between systems with different charges poses a special challenge. System operators need to know how much a given trade uses the network, in order to allocate an appropriate portion of their costs to that trade. This paper discusses a technique, tracing, for determining how much each of a number of trades uses different parts of the electricity network. The scheme is based on the assumption that at any network node, inflows are shared proportionally between outflows (and vice versa). The paper outlines the technique and shows how it could be applied to the problem of charging cross-border trades. The paper goes on to demonstrate that the technique has a game theoretic rationale, in that it produces the Shapley value solution to a game equivalent to this allocation problem.

Suggested Citation

  • Kattuman, P.A. & Green, R.J. & Bialek, J.W., 2001. "A Tracing Method for Pricing Inter-Area Electricity Trades," Cambridge Working Papers in Economics 0107, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:0107
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    References listed on IDEAS

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    1. Castano-Pardo, Alberto & Garcia-Diaz, Alberto, 1995. "Highway cost allocation: An application of the theory of nonatomic games," Transportation Research Part A: Policy and Practice, Elsevier, vol. 29(3), pages 187-203, May.
    2. Aadland, David & Kolpin, Van, 1998. "Shared irrigation costs: An empirical and axiomatic analysis," Mathematical Social Sciences, Elsevier, vol. 35(2), pages 203-218, March.
    3. Martin Shubik, 1962. "Incentives, Decentralized Control, the Assignment of Joint Costs and Internal Pricing," Management Science, INFORMS, vol. 8(3), pages 325-343, April.
    4. S. C. Littlechild & G. Owen, 1973. "A Simple Expression for the Shapley Value in a Special Case," Management Science, INFORMS, vol. 20(3), pages 370-372, November.
    5. Richard Green, 2004. "Electricity Transmission Pricing: How much does it cost to get it wrong?," Working Papers EP63, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
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    Cited by:

    1. Brunekreeft, G., 2003. "Market-based Investment in Electricity Transmission Networks: Controllable Flow," Cambridge Working Papers in Economics 0340, Faculty of Economics, University of Cambridge.

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    More about this item

    Keywords

    deregulation; transmission loss; pricing; co-operative games;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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