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Electricity Transmission Pricing: 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 thirteen 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 1.5% 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.

Suggested Citation

  • Richard Green, 2004. "Electricity Transmission Pricing: How much does it cost to get it wrong?," Working Papers 0420, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
    • Handle: RePEc:mee:wpaper:0420
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    Cited by:

    1. Walawalkar, Rahul & Fernands, Stephen & Thakur, Netra & Chevva, Konda Reddy, 2010. "Evolution and current status of demand response (DR) in electricity markets: Insights from PJM and NYISO," Energy, Elsevier, vol. 35(4), pages 1553-1560.
    2. Rious, Vincent & Glachant, Jean-Michel & Perez, Yannick & Dessante, Philippe, 2008. "The diversity of design of TSOs," Energy Policy, Elsevier, vol. 36(9), pages 3323-3332, September.
    3. Bernard, Jean-Thomas & Guertin, Chantal, 2000. "Nodal Pricing and Transmissions Losses. An Application to a Hydroelectric Power System," Cahiers de recherche 0007, GREEN.
    4. Gorini de Oliveira, Ricardo & Tolmasquim, Mauricio Tiomno, 2004. "Regulatory performance analysis case study: Britain's electricity industry," Energy Policy, Elsevier, vol. 32(11), pages 1261-1276, July.
    5. Joskow, Paul L., 2008. "Capacity payments in imperfect electricity markets: Need and design," Utilities Policy, Elsevier, vol. 16(3), pages 159-170, September.
    6. Pepermans, Guido & Willems, Bert, 2010. "Cost Recovery in Congested Electricity Networks," Working Papers 2010/22, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    7. Youngho Chang & Justin Lee & Wei Xiang Ang & Jing Yi Chua, 2019. "Energy Market Integration in ASEAN: Locational Marginal Pricing and Welfare Implications," Journal of Asian Economic Integration, , vol. 1(1), pages 48-72, April.
    8. 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.
    9. Hulya Dagdeviren, 2009. "Limits To Competition And Regulation In Privatized Electricity Markets," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 80(4), pages 641-664, December.
    10. Vincent Rious & Yannick Perez & Philippe Dessante, 2008. "The efficiency of short run and long run locational signals to coordinate generation location with lumpy transmission investments," Post-Print hal-00339505, HAL.
    11. Rosellon, Juan & Tregear, Juan & Zenon, Eric, 2010. "El modelo HRV para expansión óptima de redes de transmisión: una aplicación a la red eléctrica de Ontario [The HRV Model for the Optimal Expansion of Transmission Networks: an Application to the On," MPRA Paper 26471, University Library of Munich, Germany.
    12. Vincent Rious & Yannick Perez & Philippe Dessante, 2008. "Is combination of nodal pricing and average participation tariff the best solution to coordinate the location of power plants with lumpy transmission investments?," Post-Print hal-00323878, HAL.
    13. Strbac, Goran & Pollitt, Michael & Konstantinidis, Christos Vasilakos & Konstantelos, Ioannis & Moreno, Rodrigo & Newbery, David & Green, Richard, 2014. "Electricity transmission arrangements in Great Britain: Time for change?," Energy Policy, Elsevier, vol. 73(C), pages 298-311.
    14. Anselm Eicke & Tarun Khanna & Lion Hirth, 2020. "Locational Investment Signals: How to Steer the Siting of New Generation Capacity in Power Systems?," The Energy Journal, , vol. 41(6), pages 281-304, November.
    15. Brown, Sarah J. & Rowlands, Ian H., 2009. "Nodal pricing in Ontario, Canada: Implications for solar PV electricity," Renewable Energy, Elsevier, vol. 34(1), pages 170-178.
    16. Chang, Youngho & Lee, Justin & Ang, Wei Xiang & Chua, Jing Yi, 2017. "Energy Market Integration in the ASEAN: Economics, Technology and Welfare Implications," RIEI Working Papers 2017-10, Xi'an Jiaotong-Liverpool University, Research Institute for Economic Integration.
    17. 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.

    More about this item

    JEL classification:

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

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