Type: Working Paper
Is combination of nodal pricing and average participation tariff the best solution to coordinate the location of power plants with lumpy transmission investments?
Working Paper, EUI RSCAS, 2009/14, Loyola de Palacio Programme on Energy Policy
RIOUS, Vincent, DESSANTE, Philippe, PEREZ, Yannick, Is combination of nodal pricing and average participation tariff the best solution to coordinate the location of power plants with lumpy transmission investments?, EUI RSCAS, 2009/14, Loyola de Palacio Programme on Energy Policy - https://hdl.handle.net/1814/11027
Retrieved from Cadmus, EUI Research Repository
This paper evaluates the opportunity and efficiency to introduce a two-part tariff to coordinate the location of power plants with lumpy transmission investments. Nodal pricing sends the short run component of such a two-part tariff and we study the case where the average participation tariff sends the long run one. We argue that this solution is helpful because the average participation tariff tackles lumpiness of transmission capacity while being as cost-reflective as possible. Our proposition is evaluated based on a double optimization model where a TSO minimizes the transmission cost while a generator minimizes its own cost that may take into account network constraints and include the average participation tariff. Numerical simulations are performed on a two-node network evolving during twenty years with increasing demand. The joint implementation of nodal pricing and the average participation tariff stays the best combination to coordinate as efficiently as possible the generation and transmission investments, although the optimal set of generation and transmission investments may not be reached because of transmission lumpiness. The simulations show also that implementing locational network tariffs is prioritary over implementing nodal pricing to coordinate more efficiently the location of generation with lumpy transmission investment. In the considered examples, the average participation tariff allows a more efficient location of generation even when the congestion management scheme being redispatch sends no short run locational signal.
Cadmus permanent link: https://hdl.handle.net/1814/11027
Series/Number: EUI RSCAS; 2009/14; Loyola de Palacio Programme on Energy Policy