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How Compatible is Perfect Competition with Transmission Loss Allocation Methods?

Author

Listed:
  • Jing Dai

    (SUPELEC-Campus Gif - Ecole Supérieure d'Electricité - SUPELEC (FRANCE))

  • Yannick Phulpin

    (SUPELEC-Campus Gif - Ecole Supérieure d'Electricité - SUPELEC (FRANCE))

  • Vincent Rious

    (SUPELEC-Campus Gif - Ecole Supérieure d'Electricité - SUPELEC (FRANCE))

  • Damien Ernst

    (Université de Liège)

Abstract

This paper addresses the problem of transmission loss allocation in a power system where the generators, the demands and the system operator are independent. We suppose that the transmission losses are exclusively charged to the generators, which are willing to adopt a perfectly competitive behavior. In this context, their offers must reflect their production costs and their transmission loss costs, the latter being unknown beforehand and having to be predicted. We assume in this paper that the generators predict their loss costs from the past observations by using a weighted average of their past allocated costs. Under those assumptions, we simulate the market dynamics for different types of transmission loss allocation methods. The results show that the transmission loss allocation scheme can lead to a poorly efficient market in terms of social welfare.

Suggested Citation

  • Jing Dai & Yannick Phulpin & Vincent Rious & Damien Ernst, 2008. "How Compatible is Perfect Competition with Transmission Loss Allocation Methods?," Post-Print hal-00300388, HAL.
    • Handle: RePEc:hal:journl:hal-00300388
    Note: View the original document on HAL open archive server: https://centralesupelec.hal.science/hal-00300388
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    References listed on IDEAS

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    1. Vernon L. Smith, 1994. "Economics in the Laboratory," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 113-131, Winter.
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    More about this item

    Keywords

    Transmission loss allocation; agent-based simulation; market efficiency; electricity market;
    All these keywords.

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