Spatial Peak-load Pricing

M. Soledad Arellano and Pablo Serra

No 199, Documentos de Trabajo from Centro de Economía Aplicada, Universidad de Chile

Abstract: This article extends the traditional electricity peak-load pricing model to include transmission costs. In the context of a two-node, two-technology electric power system, where suppliers face inelastic demand, we show that when the marginal plant is located at the energy-importing center, generators located away from that center should pay the marginal capacity transmission cost; otherwise, consumers should bear this cost through capacity payments. Since electric power transmission is a natural monopoly, marginal-cost pricing does not fully cover costs. We propose distributing the revenue deficit among users in proportion to the surplus they derive from the service priced at marginal cost.

Date: 2004
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Related works:
Journal Article: Spatial peak-load pricing (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:edj:ceauch:199

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