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Spatial Peak-load Pricing

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  • M. Soledad Arellano
  • Pablo Serra

Abstract

This article extends the traditional electricity peak-load pricing model to include transmission costs. In the context of a two-node, two-technology electric power system, where suppliers face inelastic demand, we show that when the marginal plant is located at the energy-importing center, generators located away from that center should pay the marginal capacity transmission cost; otherwise, consumers should bear this cost through capacity payments. Since electric power transmission is a natural monopoly, marginal-cost pricing does not fully cover costs. We propose distributing the revenue deficit among users in proportion to the surplus they derive from the service priced at marginal cost.

Suggested Citation

  • M. Soledad Arellano & Pablo Serra, 2004. "Spatial Peak-load Pricing," Documentos de Trabajo 199, Centro de Economía Aplicada, Universidad de Chile.
  • Handle: RePEc:edj:ceauch:199
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    References listed on IDEAS

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    1. Yves Balasko, "undated". "Theoretical perspectives on three issues of electricity economics," GSIA Working Papers 2000-E46, Carnegie Mellon University, Tepper School of Business.
    2. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-242, September.
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    12. José Pablo Arellano, 2004. "Principios para Tarificar la Transmisión Eléctrica," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 41(123), pages 231-253.
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    Cited by:

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