Comparison of transmission tariff methods in a free market for electricity

One of the outstanding issues in the liberalisation of the electricity market is the way in which transmission costs are translated into tariffs. The transport grid is seen as a natural monopoly, and thus the transmission tariffs should be regulated. Ideally, the tariff structure should lead to economic efficiency, it should enable the grid owner to cover his costs, and it should be nondiscriminatory and transparent. The present study compares three basic alternative methods of transmission pricing-postage stamp, distance related and nodal-in the light of these requirements, and presents a tariff proposal for Belgium. Special attention is paid to cross-border transmission.