Nodal Pricing for Distribution Networks: Efficient Pricing for Efficiency Enhancing DG

Abstract

As distributed generation (DG) becomes more widely deployed, distribution networks become more active and take on many of the same characteristics as transmission. We propose the use of nodal pricing that is often used in the pricing of short-term operations in transmission. As an economically efficient mechanism, nodal pricing would properly reward DG for reducing line losses through increased revenues at nodal prices and signal prospective DG where it ought to connect with the distribution network. Applying nodal pricing to a model distribution network, we show significant price differences between buses reflecting high marginal losses. Moreover, we show the contribution of a DG resource located at the end of the network to significant reductions in losses and line loading. We also show the DG resource has significantly greater revenue under nodal pricing, reflecting its contribution to reduced line losses and loading.