An Aumann-Shapley approach to allocation of bilateral transmission loss cost in a gross-pool energy market using independent marginal losses and transaction loss factors

In a mixed pool/bilateral, Locational Marginal Price based energy market, each participant, i.e., either the Generating Company or the Distribution Utility must pay its share of the losses in the transmission network. For multiple Generator-Load pairs bounded by a physical bilateral contract, these losses must be accounted for accordingly. A transaction-based loss allocation technique which uses a Transaction Loss Factor (TLF) coupled with the Independent Marginal Loss (IML) formulation and Aumann-Shapley methodology is used in this study to determine the bilateral loss cost allocation. The TLF accurately and fairly allocates loss for each bilateral transaction, the IML solves the reference bus dependency of the marginal loss sensitivity while the Aumann-Shapley method from game theory tackles the multiple-entrant, joint cost allocation problem.