Electricity Transmission Pricing Research Articles

Research on Electricity Transmission and Distribution Price Calculation under Electricity Regulation

The new round electricity system reform leads to changes in electricity supervisory environment. Further, the reform on electricity transmission and distribution price has new objective. Under such background, this paper establishes scientific and reasonable electricity transmission and distribution price calculation model, collects data and carries out electricity transmission and distribution pricing. Based on calculation results, this paper carries out parameter sensitivity analysis on electricity volume (uncertain regulatory parameters) and main regulating parameters, and gets sensitivity ranking of each pricing parameter of electricity transmission and distribution. Through study, the electricity transmission and distribution price calculation model and sensitivity analysis model for price influence factors under new electricity supervision are formed, providing ideas and opinions for electricity transmission and distribution price calculation.

A simple regulatory incentive mechanism applied to electricity transmission pricing and investment

The informationally simple approach to incentive regulation applies mechanisms that translate the regulator's objective function into the firm's profit-maximizing objective. These mechanisms come in two forms, one based on subsidies/taxes, the other based on constraints/price caps. In spite of a number of improvements and a good empirical track record simple approaches so far remain imperfect. The current paper comes up with a new proposal, called H-R-G-V, which blends the two traditions and is shown in simulations to apply well to electricity transmission pricing and investment. In particular, it induces immediately optimal pricing/investment but is not based on subsidies. In the transmission application, the H-R-G-V approach is based on a bilevel optimization with the transmission company (Transco) at the top and the independent system operator (ISO) at the bottom level. We show that H-R-G-V, while not perfect, marks an improvement over the other simple mechanisms and a convergence of the two traditions. We suggest ways to deal with remaining practical issues of demand and cost functions changing over time.

A Simple Regulatory Incentive Mechanism Applied to Electricity Transmission Pricing and Investment

The informationally simple approach to incentive regulation applies mechanisms that translate the regulator’s objective function into the firm’s profit-maximizing objective. These mechanisms come in two forms, one based on subsidies/taxes, the other based on constraints/price caps. In spite of a number of improvements and a good empirical track record simple approaches so far remain imperfect. The current paper comes up with a new proposal, called H-R-G-V, which blends the two traditions and is shown to apply well to electricity transmission pricing and investment. In particular, it induces immediately optimal pricing/investment but is not based on subsidies. In the transmission application, the H-RG-V approach is based on a bilevel optimization with the transmission company (Transco) at the top and the independent system operator (ISO) at the bottom level. We show that HR-G-V, while not perfect, marks an improvement over the other simple mechanisms and a convergence of the two traditions. We suggest ways to deal with remaining practical issues of demand and cost functions changing over time.

The Impact of Transmission Pricing in Network Industries

The allocation of scarce transmission resources has a considerable impact on investment incentives in network industries. We study the long term effects of two common network management regimes on investment in production and transmission facilities. In one case transmission constraints are directly taken into account through locationally differentiated market prices (simultaneous market clearing). In the other case, a uniform market price is implemented and transmission constraints are resolved in a subsequent congestion market (sequential market clearing). While simultaneous market clearing produces the efficient outcome, sequential market clearing leads to overinvestment in generation and transmission capacity, as we show. These findings contribute to the debate on electricity transmission pricing.

Toward a Combined Merchant-Regulatory Mechanism for Electricity Transmission Expansion

Electricity transmission pricing and transmission grid expansion have received increasing regulatory and analytical attention in recent years. Since electricity transmission is a very special service with unusual characteristics, such as loop flows, the approaches have been largely tailor-made and not simply taken from the general economic literature or from the more specific but still general incentive regulation literature. An exception has been Vogelsang (2001), who postulated transmission cost and demand functions with fairly general properties and then adapted known regulatory adjustment processes to the electricity transmission problem. A concern with this approach has been that the properties of transmission cost and demand functions are little known but are suspected to differ from conventional functional forms. The assumed cost and demand properties in Vogelsang (2001) may actually not hold for transmission companies (Transcos). Loop-flows imply that certain investments in transmission upgrades cause negative network effects on other transmission links, so that capacity is multidimensional. Total network capacity might even decrease due to the addition of new capacity in certain transmission links. The transmission capacity cost function can be discontinuous. There are two disparate approaches to transmission investment: one employs the theory based on long-run financial rights (LTFTR) to transmission (merchant approach), while the other is based on the incentive-regulation hypothesis (regulatory approach). An independent system operator (ISO) could handle the actual dispatch and operational pricing. The transmission firm is regulated through benchmark or price regulation to provide long-term investment incentives while avoiding congestion. In this paper we consider the elements that could combine the merchant and regulatory approaches in a setting with price-taking electricity generators and loads.

Toward a combined merchant-regulatory mechanism for electricity transmission expansion

Electricity transmission pricing and transmission grid expansion have received increasing attention in recent years. There are two disparate approaches to transmission investment: one employs the theory based on long-run financial rights (LTFTR) to transmission (merchant approach), while the other is based on the incentive-regulation hypothesis (regulatory approach). In this paper we consider the elements that could combine the merchant and regulatory approaches in a setting with price-taking electricity generators and loads. The monopoly transmission firm (Transco) is regulated through benchmark or price regulation to provide long-term investment incentives. The two-part tariff approach used can be analyzed analytically only for well-behaved cost and demand functions. We explore a series of simplified transmission grids to argue that in a variety of circumstances those functions could have reasonable economic properties. The results suggest directions for further research to explore the properties of the cost functions and implications for design of practical incentive mechanisms and the integration with merchant investment in organized markets with LTFTRs.

Optimal Electricity Transmission Pricing in a Restructured Electricity Market

Optimal Electricity Transmission Pricing in a Restructured Electricity Market

Electricity transmission pricing: Tracing based point-of-connection tariff

Point-of-connection (POC) scheme of transmission pricing in decentralized markets charges the participants a single rate per MW depending on their point-of-connection. Use of grossly aggregated postage stamp rates as POC charges fails to provide appropriate price signals. The POC tariff based on distribution of network sunk costs by employing conventional tracing assures recovery of sunk costs based on extent of use of network by participants. However, the POC tariff by this method does not accommodate economically efficient price signals which correspond to marginal costs. On the other hand, the POC tariff, if made proportional to marginal costs alone, fails to account for sunk costs and extent of use of network. This paper overcomes these lacunae by combining the above stated desired objectives under the recently proposed optimal tracing framework. Since, real power tracing problem is amenable to multiple solutions, it is formulated as linearly constrained optimization problem. By employing this methodology, consideration of extent of network use and sunk cost recovery are guaranteed, while objective function is designed such that the spatial pattern of price signals closely follows the pattern of scaled locational marginal prices. The methodology is tested on IEEE 30 bus system, wherein average power flow pattern is established by running various simulation states on congested and un-congested network conditions.

A Weakly Conditioned Imputation of an Impedance-Branch Dissipation Power

In a sinusoidal steady-state circuit, how much of an impedance-branch dissipation power should be assigned to each source? The answer is the basis of electricity transmission pricing, such as the pricing of line loss and line security due to thermal limit. However, it is difficult to obtain a unique and common consent answer because of the nonlinearity of power expression. This paper presents two weakly conditioned imputation formulas, respectively for dissipation active- and reactive-power, to answer the question. First, a detailed form of Shapley value formula and three weak conditions are proposed. On this basis, the two imputation formulas are then derived and proved mathematically. The imputation formulas are explicitly in terms of source currents/voltages, thus analytic and easy to compute. They possess eight mathematical and economic features that lay a good foundation for electricity transmission pricing. The two imputation formulas are also extended to actual power systems where trades are conducted in MWh/MVARh instead of amperes/volts. Numerical examples illustrate their computing process and features.

The effects of average revenue regulation on electricity transmission investment and pricing

This paper investigates the long-run effects of average revenue regulation on an electricity transmission monopolist who applies a two-part tariff comprising a variable congestion price and a non-negative fixed access fee. A binding constraint on the monopolist's expected average revenue lowers the access fee, promotes transmission investment, and improves consumer surplus. In a case of any linear or log-linear electricity demand function with a positive probability that no congestion occurs, average revenue regulation is allocatively more efficient than a Coasian two-part tariff if the level of capacity under average revenue regulation is higher than that under a Coasian two-part tariff.

Electricity Transmission Pricing and Performance-based Regulation

Performance-based regulation (PBR) is influenced by the Bayesian and non-Bayesian incentive mechanisms. While Bayesian incentives are impractical for direct implementation, the insights from their properties can be combined with practical non-Bayesian mechanisms for application to transmission pricing. This combination suggests an approach based on the distinction between ultra-short, short and long periods. Ultra-short periods are marked by real-time pricing of point-to-point transmission services. Pricing in short periods involves fixed fees and adjustments via price-cap formulas or profit sharing. Productivity-enhancing incentives have to be tempered by long-term commitment considerations, so that profit sharing may dominate pure price caps. Investment incentives require long-term adjustments based on rate-of-return regulation with a “used and useful” criterion.

Electricity Transmission Pricing and Performance-Based Regulation

Performance-based regulation (PBR) is influenced by the Bayesian and non-Bayesian incentive mechanisms. While Bayesian incentives are impractical, the insights from their properties can be combined with practical non-ayesian mechanisms for application to transmission pricing. This combination suggests an approach based on the distinction between ultra-short, short and long periods. Ultra-short periods are marked by real-time pricing of point-to-point transmission services. Pricing in short periods involves fixed fees and adjustments via price-cap formulas or profit sharing. Productivity-enhancing incentives have to be tempered by long-term commitment considerations, so that profit sharing may dominate pure price caps. Investment incentives require long-term adjustments based on rate-of-return regulation with a used and useful criterion.

Electricity transmission pricing: The German case

This paper elucidates the German electric power market, especially the electricity transmission pricing system that has been in force since January 2000. This paper points to several distorting pricing features, as well as to grid access problems, and suggests that a regulation office should be established. Moreover, it is argued that an independent grid operator for the entire German grid would enhance its efficient operation, and thereby increase the overall efficiency of the German electric power market. In addition, the actual cost structure and calculation procedure of a German grid operator is described in some detail.

Large RTOs and Traditional Transmission Pricing Don’t Mix

Historical electricity transmission pricing procedures such as postage stamp pricing and rolling-in may not be well suited for a regional transmission organization regime. Any assessment of potential benefits from RTO formation that assumes that these procedures stay in place is flawed if it ignores the potential for substantial extra costs prompted by use of these procedures. There appears to be widespread agreement that additional investment in the transmission system is needed to support the increasingly competitive wholesale electricity markets that virtually everyone believes are desirable, as well as to accommodate new generation capacity to meet growing demand in reliable fashion. Much discussion of this topic focuses upon certain types of problems that are believed to be impeding this new investment. These commonly discussed problems include (1) planning difficulties created by balkanized ownership and control of the transmission grid, (2) perceived parochial viewpoints of state and local regulators when they consider new transmission projects with benefits that are widely disbursed geographically but costs that are much more localized, and (3) perceived inadequate financial incentives that transmission owners have for investing in new transmission facilities. Separate questions, that have been less thoroughly examined, concern how the costs for new transmission investments should be recovered from users. In this article we ask whether historical transmission pricing procedures are likely to be appropriate when substantial investment in new transmission capacity is undertaken under a regime of RTOs that cover broad geographic areas. We address this question through the example of a developer choosing between locating a new generator near the load that it wishes to serve or near natural gas-producing areas that are remote from the load areas.

Decision Tools for Electricity Transmission Service and Pricing

This paper considers two methods for transmission service to the electric grid users in a market structure with both long-term bilateral agreements and short-term spot market. The first type of service is the one in which a transmission system provider is the main decision maker solving optimization at the system-wide level. The second type of service allows for the system users to indirectly control flows on the grid by deciding how much demand to exert for system use. Both formulations fall under the category of optimal transmission resource allocation problems. The formulations in this paper require solutions to a stochastic dynamic programming problem. The paper emphasizes process characterization and the assessment of the computational tools for solving the underlying stochastic optimization problems.

Electricity transmission pricing: an international comparison

This paper discusses six criteria for electricity transmission prices, concerned with economic efficiency and political implementation. Prices should signal the costs of using the transmission system, but this may conflict with the need to produce a clear message that users can understand, given the complexity of transmission costs. Changes to transmission prices are also likely to produce winners and losers, and so political constraints may impede cost-reflective changes. This paper draws out some of these themes, using examples from eight studies of transmission pricing systems, written by members of a working group of the Energy Modeling Forum.

Electricity transmission pricing: Contracts must reflect costs

Pricing of transmission services in the open-access networks required for competition must take into account the three main costs of providing transmission services: costs of building capacity (including sunk costs); costs of marginal losses; and costs of congestion.

Electricity transmission pricing: The new approach

Competition in electricity markets has led to the recognition that electricity needs to be priced on the basis of marginal costs which vary by time of use. Increased access to transmission networks has led to an expansion of this view, beyond time of use, to the place of use. This paper examines a new approach to transmission pricing derived from the fundamental principles of transport economics. It shows how pricing based on short-run marginal costs can be reconciled with appropriate signals for long-term investment and monopoly in an integrated transmission system.