Long-run incremental cost pricing based on unused capacity

Fu-Rong Li, David L. Tolley

Research output: Contribution to journalArticle

100 Citations (Scopus)

Abstract

This paper proposes a novel approach for providing long-run incremental cost (LRIC) pricing in network charges. The proposed approach makes use of the unused capacity of an exiting network to reflect the cost of advancing or deferring future investment consequent upon the addition of generation or load at each study node on a distribution network. Compared with existing approaches to LRIC pricing, the proposed approach produces forward-looking charges that reflect both the extent of the network needed to service the generation or load, and the degree to which that network is utilized. The efficacy of the proposed LRIC approach has been validated by a comparison with the established investment cost related pricing (ICRP) method used for deriving transmission charges in Great Brain (GB). This paper draws on work undertaken in projects for Western Power Distribution and Ofgem (Office of Gas and Electricity Markets, U.K.). However, the views expressed in this paper are those of the authors.
Original languageEnglish
Pages (from-to)1683-1689
Number of pages7
JournalPower Systems, IEEE Transactions on
Volume22
Issue number4
DOIs
Publication statusPublished - Nov 2007

Keywords

  • Western Power Distribution
  • power system economics
  • deferring future investment
  • long-run incremental cost pricing
  • investment
  • Great Britain
  • Office of Gas and Electricity Markets
  • pricing
  • Equilibrium
  • unused capacity
  • distribution networks
  • transmission charges
  • incremental cost pricing
  • network charges

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