A method for optimal pricing of electric supply including transmission system considerations

Determining real-time electricity rate structures is currently receiving a great deal of attention. In this paper, a strategy for pricing electricity supply is formulated and evaluated. Unlike other methods, which use only the variation of fuel cost for generation to estimate the rate structures, the proposed pricing algorithm incorporates the optimal allocation of transmission system operating costs based on time-of-use pricing. The transmission costs are obtained by assigning a price to each unit of power flow in the network. The assignment does not discriminate between participants located at differing parts of the network. The real-time pricing reflects the instantaneous cost of production and functions as a load management tool because this interacts with consumer behavior. The demand for power flows and transmission on an electricity supply system, like the demand for any bundle of economic goods, depends upon the assigned transmission prices, together with the economic benefit to the consumer. It is assumed that there are no privately owned generating plants and that all plants and transmission lines are operated by the utility. The modeling scheme is applied to the IEEE standard 5, 14, 30 and 57 bus power systems and involves solving a modified optimal power flow problem iteratively using the MINOS package. It is concluded that the method has wide potential application in electricity supply pricing