Long-run incremental pricing based transmission charging method distinguishing demand and generation technologies

This paper develops a novel transmission charging method based on long-run incremental cost (LRIC) pricing. It is able to recognize the trade-offs between short-run congestion cost and future investment cost. Innovatively, it can differentiate the impact of demand and generation technologies on advancing or deferring network investment. An incremental capacity change from a network user influences congestion cost first, which is then converted into network investment horizon. The difference in the present values with and without the incremental change is the long-run incremental cost (LRIC), which is the transmission tariff for this network user. The demonstration results illustrate that the proposed approach provides positive tariffs for congestion contributors (charges) and negative tariffs for congestion eliminators (rewards) in congestion areas. It offers distinguishing tariffs for different generation technologies and updates the tariffs to reflect the changes in generation mix. The proposed approach can incentive appropriate generation behavior to reduce congestion cost and ultimately network investment cost.