Optimization of costs and benefits in Inter TSO Compensation mechanism

Purpose of this paper is to specify the benefits in Inter TSO Compensation mechanism. The intension is to contribute to the future solution for transit in the European Power Market. Cross-border trading is influenced by several mechanisms (congestion management, transit, tariffs, investment) which need to be examined from technical and economical point of view. All mechanisms are interconnected and represent an extensive and complicated set of problems. Cross border exchange has direct economic benefits leading to increased competition, increased market liquidity, stabilized prices and increased security of supply. In the Regulation 714/2009/EC and Guidelines 774/2010/EC (838/2010/EC) for ITC there is no clear definition of the benefits-concept and elements that should be considered. We will discuss some of the principles that are suggested and/or applied and study possible consequences. Some illustrations and calculations were done in MATLAB based on full AC optimal power flow. The balance between benefits and costs are analyzed depending on inter-area conditions. In the end we have proposed general algorithm for compensation of losses which include calculation of benefits with detailed principles: real losses with transits minus estimated losses without transits minus estimated benefits with transits. These principles could be applied to any future solution for transit.