Marginal cost pricing and revenue reconciliation for electricity

This paper demonstrates how mathematical programming can be used to calculate efficient prices of electricity when demand fluctuates over time and where production comes from different types of plants. It is shown that prices have to be set according to marginal costs and differentiated between peak...

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Bibliographic Details
Published in:European journal of operational research 1983-01, Vol.13 (3), p.274-277
Main Author: Bergendahl, Göran
Format: Article
Language:English
Subjects:
Elasticity
Electric utilities
Marginal costs
Marginal pricing
Mathematical analysis
Mathematical programming
Peak load pricing
Pricing policies
Reconciliation
Revenue
Citations: Items that this one cites
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Summary:This paper demonstrates how mathematical programming can be used to calculate efficient prices of electricity when demand fluctuates over time and where production comes from different types of plants. It is shown that prices have to be set according to marginal costs and differentiated between peak and off-peak load. Furthermore, the paper concerns the use of reconciliation methods for those cases where producers' surplus will be far above what might be considered as a fair rate of return. Here it is shown that it is extremely important to let the energy charges follow the marginal costs, while any modification of the efficient price should be directed to changes in fixed charges.
ISSN:0377-2217
1872-6860
DOI:10.1016/0377-2217(83)90056-5