Long-run Incremental Cost Pricing Based on Nodal Voltage Spare Capacity

This paper proposes long-run incremental cost (LRIC) pricing to reflect the investment cost in network to maintain the quality of supply, i.e. ensuring that nodal voltages are within limits. The proposed approach makes use of spare nodal voltage capacity or headroom of an existing network (distribution and transmission systems) to provide the time to invest in reactive power compensation devices. A nodal reactive power withdrawal or injection will impact on system voltages, which in turn defer or accelerate the future network investment, the LRIC-voltage network charge aims to reflect the impact on network voltage profiles as the result of nodal reactive power perturbation. This approach provides forward-looking signals that reflect both the voltage profiles of an existing network and the indicative future cost of VAr compensation assets. The forward-looking LRIC-voltage charges can be used to influence the location of future generation/demand for bettering network quality.