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Incentive properties of coincident peak pricing

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  • Ross Baldick

    (The University of Texas)

Abstract

Coincident peak pricing is used in several electricity markets to recover the embedded cost of infrastructure, such as transmission. In this approach, measured consumption at the time of the peak is used to set charges for that pricing period or a subsequent period. If transmission costs are truly sunk, then such a recovery is unlikely to be efficient. However, in the context of growing peak demand, new additions must be built. We consider the incentive properties of coincident peak pricing when related investments are not considered to be sunk, finding that it can reproduce the incentive properties of an ideal time-varying price. We also consider several variations on this assumption.

Suggested Citation

  • Ross Baldick, 2018. "Incentive properties of coincident peak pricing," Journal of Regulatory Economics, Springer, vol. 54(2), pages 165-194, October.
    • Handle: RePEc:kap:regeco:v:54:y:2018:i:2:d:10.1007_s11149-018-9367-9
    DOI: 10.1007/s11149-018-9367-9
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    3. Niels Govaerts & Kenneth Bruninx & Hélène Le Cadre & Leonardo Meeus & Erik Delarue, 2021. "Forward-looking distribution network charges considering lumpy investments," Journal of Regulatory Economics, Springer, vol. 59(3), pages 280-302, June.
    4. Gunkel, Philipp Andreas & Bergaentzlé, Claire-Marie & Keles, Dogan & Scheller, Fabian & Jacobsen, Henrik Klinge, 2023. "Grid tariff designs to address electrification and their allocative impacts," Utilities Policy, Elsevier, vol. 85(C).
    5. Venkatraman, Athindra & Thatte, Anupam A. & Xie, Le, 2021. "A smart meter data-driven distribution utility rate model for networks with prosumers," Utilities Policy, Elsevier, vol. 70(C).

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    More about this item

    Keywords

    Coincident peak pricing; Transmission systems; Electric power system expansion;
    All these keywords.

    JEL classification:

    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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