Charging for network security based on long-run incremental cost pricing

Pricing for the use of the networks is essential in the way that it should be able to reflect the costs/benefits imposed on a network when connecting a new generator or demand and to provide forward-looking message to influence the site and size of future network customers. Studies have been extensively carried out over the years to achieve this pricing goal. Few methodologies can directly link nodal generation/demand increment to network long-run marginal/incremental costs. Even fewer consider network security in their pricing methodologies, considering it is one of the most important cost drivers. All networks are designed to be able to withstand credible contingencies, but this comes at a significant cost to network development. This paper proposes a new approach that can establish the direct link between nodal generation/demand increment and changes in investment cost while ensuring network security. The investment cost is reflected by the change in the spare capacity of a network asset from a nodal injection, which is in turn translated into an investment horizon, leading to the change in the present value of a future investment cost. The security is reflected in the pricing through a full N - 1 contingency analysis to define the maximum allowed power flow along each circuit, from which the time horizon of future investment is determined. This paper illustrates the implementation of the proposed pricing model for a system whose demand grows either at a uniform rate or at variable growth rates. The benefits of introducing security into the long-run pricing model are demonstrated on the IEEE 14-busbar system and a practical 87-busbar distribution network.