Pricing for integrated electricity and gas systems based on long-run incremental cost

Different energy vectors, such as electricity and natural gas, are becoming closely linked by new technologies, providing a more reliable and flexible energy supply. Due to the increasing complexity and interdependency, it is essential to set pricing signals for the integrated energy systems to recover the corresponding long-term investment cost. However, the current practice is to price the two systems separately, which cannot respect their increasing linkage. This paper extrapolates the longrun incremental cost (LRIC) pricing from electricity networks to integrated gas and electricity systems, setting system prices for both of them in a combined form. It is assumed that the two energy systems are linked by Combined Heat and Power (CHP). The pricing scheme works by translating the impacts from system utilisation caused by customers into economic signals. It can help network operators to recover investment cost and at the same time provide forward-looking cost signals to guide the use of integrated systems.