Combined heat and power economics

Combined heat and power is a joint product system generating electricity and heat, both relatively ‘non-storable’ commodities with temporally fluctuating demands. A ‘peak-load pricing’ model of the CHP system is developed to investigate the pricing and capacity decisions involved in this two market...

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Bibliographic Details
Published in:Energy economics 1982-10, Vol.4 (4), p.276-285
Main Author: Dobbs, Ian M.
Format: Article
Language:English
Subjects:
CHP
Economics
Electricity
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Summary:Combined heat and power is a joint product system generating electricity and heat, both relatively ‘non-storable’ commodities with temporally fluctuating demands. A ‘peak-load pricing’ model of the CHP system is developed to investigate the pricing and capacity decisions involved in this two market system. Various market structures are considered and the pricing implications investigated. The solutions have several interesting features, including possible peak-load switching. Where a decentralized CHP system exports electricity to the central system and operates in a local heat market, then, ceteris paribus, higher central electricity system prices imply lower optimal local heat market prices. In this latter case, the tariff offered by the electricity supply industry for CHP generated electricity has implications for investment and for pricing in the heat market — this tariff is therefore examined further. The case for marginal cost pricing is shown to have several attractive features.
ISSN:0140-9883
1873-6181
DOI:10.1016/0140-9883(82)90009-3