Pricing schemes for dealing with limited transmission capacity - A comparative study

Transmission congestion is one of the main reasons of social welfare losses. Electricity demand cannot be supplied by low-cost generators because of congestions. After deregulation of the power industry, the number of market participants has increased and each market participant has open access to the transmission network. This new policy leads to a dramatic increase in transmission congestion. Thats why the transmission system operator needs a proper pricing scheme to alleviate the congestions in the transmission system. This paper reviews four pricing schemes; nodal pricing, zonal pricing with market splitting, zonal pricing with countertrading and regional pricing. All pricing schemes are mathematically formulated and IEEE twenty-four node reliability test system is used to illustrate the operation of the pricing schemes. A comparison of numerical results is done from both supplier´s and consumer´s point of view. Finally, the general advantages and drawbacks of each pricing approach is discussed.