An electrical system is modelled with a transmission network, customers, central generators, and independent generators. The system is subject to stochastic failures and stochastic demand parameters. Optimal spot prices are derived for the system. They vary stochastically with space and time, and depend on electrical load flow patterns. The price difference between two locations or two voltage levels, and the wheeling charge between them, will change magnitude and sometimes sign over time, as a function of events throughout the network. Current spatial pricing methods are significantly different from the spot-price-based methods derived here.

Optimal pricing in electrical networks over space and time

The electric power industry is in transition to a deregulated marketplace for power transactions. In this environment, all power transactions are made based on price rather than cost. A regional power pool is noted as the most straightforward path to a deregulated electricity marketplace. However, many questions remain unanswered regarding the economics of power pool participation. In a deregulated energy marketplace, participants are interested in maximizing their own profits, regardless of the system-wide profits. It is perceived that competition will reduce the price of electricity for retail customers, however, the key issue for participants is related with the price definition to remain competitive. In this paper, the authors use game theory to simulate the decision making process for defining offered prices in a deregulated environment. The outcome of this study may be used by power pool coordinators to discourage unfair coalitions. A modified IEEE 30 bus power system is used as a deregulated power pool to illustrate the main features of the proposed method.

Transaction analysis in deregulated power systems using game theory

This paper presents an in-depth analysis of network revenues computed with marginal pricing, and in particular it investigates the reasons why marginal prices fail to recover the total incurred network costs in actual power systems. The basic theoretical results are presented and the major causes of the mismatch between network costs and marginal revenues are identified and illustrated with numerical examples, some tutorial and others of realistic size. The regulatory implications of marginal network pricing in the context of competitive electricity markets are analyzed, and suggestions are provided for the meaningful allocation of the costs of the network among its users. >

Marginal pricing of transmission services: an analysis of cost recovery

The customer response to spot prices is discussed. The factors that allow flexible customer response without service curtailments are identified. An overview of a fast, optimal, nonsimplex algorithm applicable to single storage electricity consuming processes is presented. A case study involving an air compression company demonstrates the application of the algorithm and shows the economic effects of industrial customer response to the spot pricing of electricity. >

Optimal demand-side response to electricity spot prices for storage-type customers

: The contracts that interest us here are called priority service contracts. The salient feature of such contracts is that they specify each customer's priority in obtaining service. That is, they specify the tank order in which a customer is served out of the available supply, until all customers are served or supply is exhausted. Such contracts essentially establish queues for customers. In Section 1 the author provides some background about priority service. Section 2 formulates a basic model and offer several illustrations. Also describes two main examples that motivate the theoretical development. Section 3 derives some key results that show how the prices of priority service contracts are designed to induce customers to self-select efficient service orders. In Section 4 the author discusses various ways that state enterprises can organize markets that implement priority service efficiently. In Section 5 we study the operation of competitive markets for priority service. Section 6 concludes with some summary remarks. Two themes are emphasized. One is that a state enterprise can promote substantial efficiency gains by substituting priority service for absent spot markets. The other is that oligopolistic firms may have insufficient incentives to offer efficient product diversity; consequently, allocative efficiency depends on entry of numerous firms. Even so, dispersal of supplies among many firms can prevent productive efficiency when there are advantages from pooling supplies.

Schweppe

Papers

Optimal Spot Pricing: Practice and Theory