Abstract
Examples of pricing in networks illustrate the issues that accompany transmission congestion in a competitive electricity market.2 In theory, pricing in a competitive electricity market with price-taking participants is at marginal cost. The competitive model is equivalent to a market with a central coordinator operating a pool. The many potential suppliers compete to meet demand, bidding energy supplies into the pool. The dispatcher chooses the welfare-maximizing combination of generation and demand to balance the system.3 This optimal dispatch determines the market clearing prices. Consumers pay this price into the pool for energy taken from the spot market and generators in turn are paid this price for the energy supplied.
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References
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Hogan, W.W. (1998). Nodes and Zones in Electricity Markets: Seeking Simplified Congestion Pricing. In: Designing Competitive Electricity Markets. International Series in Operations Research & Management Science, vol 13. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-5547-6_3
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DOI: https://doi.org/10.1007/978-1-4615-5547-6_3
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