A Tracing Method for Pricing Inter-Area Electricity Trades
Green, Richard J.
Cambridge Working Papers in Economics
Faculty of Economics
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Kattuman, P., Green, R. J., & Bialek, J. (2004). A Tracing Method for Pricing Inter-Area Electricity Trades. https://doi.org/10.17863/CAM.5179
In the context of liberalisation of electricity markets world wide, the need for agreed protocols for electricity trades between systems with different charges poses a special challenge. System operators need to know how much a given trade uses the network, in order to allocate an appropriate portion of their costs to that trade. This paper discusses a technique, tracing, for determining how much each of a number of trades uses different parts of the electricity network. The scheme is based on the assumption that at any network node, inflows are shared proportionally between outflows (and vice versa). The paper outlines the technique and shows how it could be applied to the problem of charging cross-border trades. The paper goes on to demonstrate that the technique has a game theoretic rationale, in that it produces the Shapley value solution to a game equivalent to this allocation problem.
deregulation, transmission loss, pricing, co-operative games, Classification-JEL: L94, L51, C71, D63
This record's DOI: https://doi.org/10.17863/CAM.5179
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