Long-run marginal cost based pricing of interconnected system wheeling

Abstract

Abstract Each utility in an interconnected system has an obligation to guarantee sufficient transmission capability to maintain an efficient, economical, reliable and secure system during peak scenarios. Security is an important consideration underlying network investment. The standards of service have a direct impact on investment burdens and therefore definition and consensus among participants in respect of security standards are necessary. Charging for transmission services, ensuring the investment levels and recovery of sunk capital are new problems now receiving attention in the context of electricity supply industry unbundling. In this paper a method for long run marginal cost (LRMC) based pricing in multi-area interconnected system, based on the incremental use of each area's transmission network at times of peak flow, is proposed. The LRMC of transmission capacity is based on long term costs of transmission investment requirements. The marginal wheeling costs, with security taking into account, are computed using the sensitivities of the MW-mile of each area with respect to the bus power demand. These sensitivities are calculated using a linear expansion of the Kuhn–Tucker conditions of the investment cost optimization problem. Contingency ranking method is used to speed up the computation.