Nodal Pricing in Electric Transmission: A Customers View
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www theorsociety.com OR Insight Vol. 21 Issue 3
Nodal Pricing in Electric Transmission: A Customers View Alan Brown and Patrick Tobin
Swinburne University of Technology, Hawthorn, Australia
network. Despite some inevitable 'freak' pricing this may generate from the so-called Springwasher effect, nodal pricing has proved popular and is widely used (see e.g. Oren et al, 1994; Whiten and Marion, 2005). There has been some pressure to introduce this to the Australian market (Biggar, 2005).
Abstract Various methods of determining local prices for access to power on electricity grids have been proposed since deregulation became widespread. The aim of power regulatory authorities is to ensure fairness by restrictions on collusion. Nodal pricing is used in various transmission networks around the world but has a flaw in the opportunity it offers suppliers to exploit the nexus between historical topology in transmission networks and inevitable line load limits.
The pricing of electric power is a contentious issue. Generally markets have been organised with standard auction designs and rules on collusion to yield simple demand driven single pricing. This inevitably leads to price spikes (see e.g Fabra et al, 2004). Conversely however, it has been observed that demand itself is not so elastic with price (see e.g. Sapio, 2004) because actual end users of power are generally in regulated price structures, unlike the power retailers. In a complex network, prices are often set at network nodes by use of the demand/auction bid system. This nodal price paradigm operates in New Zealand and many other deregulated markets (Sotkiewiecz and Vignolo, 2005). One perspective says that customers should pay an average price for the electrical power that is supplied to them via the transmission network. The other side of the argument says that the customer should pay a price that is dependant upon the node at which they join the network.
Introduction The past 15 years of market deregulation in the power industry has generated considerable research into efficient transmission and pricing mechanisms. Robinson (2003, 2005) has commented on the role played by mathematics in analysing the networks and explaining some of the more public failures of the system, such as the collapse of the transmission grid in the North East of North America on August 14 2003 and the pricing debacle faced by operators in California in 2001. Deregulation of electric power industries worldwide has led to various pricing dilemmas facing the network operators in those markets. One aspect of this is seen in the trading market where the spot price of power is set from those producers bidding what they will supply at a raft of prices termed the offer stack (see e.g. Kliman, 1994). Another is the affect that the transmission network itself has on the local price dictated by available generation and demand. Nodal pricing is a process applied to set prices at the nodes of a transmission
There are several unsatisfactory aspects of nodal pricing for electrical power trans
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