Transmission pricing and recovery of investment costs in the deregulated power system based on optimal circuit prices

Transmission pricing has become a major issue in the discussions about the deregulated electricity markets. Consequently, open access to the transmission system is one of the basic topics to allow competition among participants in the energy market. Transmission costs have an important impact on relative competition among participants in the energy market as well as on short- and long-term economic efficiencies of the whole electricity industry, although they represent only close to 10% of the energy market price. This paper deals with the design and tests of a transmission pricing method based on the optimal circuit prices derived from the economically adapted network (EAN). Prices derived from the EAN have the advantage of being in tune with the maximum revenue allowed to the owner of transmission assets and simplifying the optimal allocation of transmission costs among participants. Beginning from the conceptual design, the proposed method is tested on a three-bus network and on the IEEE 24-bus reliability test system.