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Transmission Pricing

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Financial Transmission Rights

Part of the book series: Lecture Notes in Energy ((LNEN,volume 7))

Abstract

The transmission grid has a major impact on the operation and investment decisions in electric power systems. This impact is more noticeable when the electricity sector is organized around a wholesale market, where the transmission network becomes the meeting point of producers and consumers. The relevance of transmission is presently increasing with the growing penetration of intermittent renewable energy sources, frequently distant from the main load centres and significantly adding to the variability of flow patterns.

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Notes

  1. 1.

    The loss factor at a certain node represents the increase in transmission losses in the system resulting from a unit increase in the power injected at this node. Loss factors depend on the existing system operation conditions.

  2. 2.

    Nodal prices are also called locational marginal prices. In the pioneering work on this subject, see (Schweppe et al. 1988), the most general term “spot prices” is used.

  3. 3.

    In some systems, like UK, energy and capacity payments associated to the production of reactive power have been paid to agents located in specific areas of the system where voltage problems may occur. However, no systematic nodal or zonal reactive power pricing scheme has been applied.

  4. 4.

    Kirchhoff laws are two. First one states that at each node, power injections must equal power withdrawals. Second one states that, when flowing among two nodes, power is split among the different parallel paths between these nodes in inverse proportion to the electrical distances along these paths.

  5. 5.

    Strictly speaking, the nodal price expression will be ρk = πk + αk, although αk will be non-zero only at those nodes where all the demand is fully unserved.

  6. 6.

    Exceptionally, “network revenues” may be negative when line losses are very large due to corona discharge. Note that network revenue is the profit that the transmission network would earn if energy were purchased from generators at their nodal price and sold to consumers at theirs. However, the transmission network should not be allowed to conduct free market transactions, but must rather be treated like a regulated monopoly with pre-established remuneration. Exceptions, namely merchant lines, may be justified for individual lines under special circumstances.

  7. 7.

    Power Transfer Distribution Factors are normally defined as the sensitivities of flows with respect to power injections, while sensitivity factors of constrained variables in general, NC, are normally defined with respect to power withdrawals. Therefore, changing the sign of factors NC corresponding to line flows is necessary to compute PTDFs. Besides, it must be noted that PTDFs are defined by some authors as the sensitivity of line flows with respect to point to point transactions rather than power injections. Thus, for example, authors in Galiana et al. (2003) compute the sensitivity of line flows with respect to equivalent bilateral power exchanges (whereby each demand is assigned a fraction of each generation and each generator is assigned a fraction of each demand in a uniform manner) to allocate the cost of these lines to their users.

  8. 8.

    If losses are considered, the amount of power withdrawn in the reference node should not be 1 MW (a unit increase) but an amount slightly larger or smaller depending on the effect on transmission losses in the system of the considered power transaction between node k and reference node s.

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Author information

Authors and Affiliations

  1. Comillas Pontifical University, Alberto aguilera 23, 28015, Madrid, Spain

    Ignacio J. Pérez-Arriaga, Luis Olmos & Michel Rivier

  2. Massachusetts Institute of Technology, 77 Massachusetts Avenue, Cambridge, MA, 02139, USA

    Ignacio J. Pérez-Arriaga

Authors
  1. Ignacio J. Pérez-Arriaga
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  2. Luis Olmos
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  3. Michel Rivier
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Corresponding author

Correspondence to Ignacio J. Pérez-Arriaga .

Editor information

Editors and Affiliations

  1. Económicas (CIDE), Department of Economics, Centro de Investigación y Docencia, Carretera Mexico-Toluca 3655, Mexico, 06400, Mexico

    Juan Rosellón

  2. Åsegårdsvegen 65, Ålesund, 6017, Norway

    Tarjei Kristiansen

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Pérez-Arriaga, I.J., Olmos, L., Rivier, M. (2013). Transmission Pricing. In: Rosellón, J., Kristiansen, T. (eds) Financial Transmission Rights. Lecture Notes in Energy, vol 7. Springer, London. https://doi.org/10.1007/978-1-4471-4787-9_2

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  • DOI: https://doi.org/10.1007/978-1-4471-4787-9_2

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