Revenue Reconciliation for Spot Pricing: Implementation and Implication

The high capital investment in a power transmission system compared to its variable operating costs is an impediment to the balancing of revenues and costs when the system operates in a spot pricing marketplace. This paper presents a revenue reconciliation method that recognizes the "use of system" by means of power flow tracing. To maximize social welfare, the proposal is that the spot prices remain unchanged but subject to a surcharge, which reflects the location of the node and thus may be considered to be an economic signal for long-term development of the system. The main advantage of the proposal is that it is fair and equitable to every market participant. It is also shown that the power flow tracing concept can also be applied to wheeling transactions for use of the system and that it can handle multiple wheeling transactions simultaneously. The proposed method is illustrated by reference to the IEEE 30-bus test system. The simulation results show its feasibility and potential for electricity market applications.