Efficient transmission pricing in power systems with considerable time-dependency

In decentralized electricity markets agents typically have to pay a tariff for each unit feed into or taken out from the electrical grid. The tariff provides short- and long term signals to market participants (generators and consumers). Since the value of water normally will be prized close to the market price, and differences in water values between different reservoirs usually are small, these tariffs can have large influence on scheduling decisions in hydro dominated power systems. The paper address the problem of forecasting tariffs in fundamental optimization models for the electricity market in power system with a considerable share of hydropower. We discuss advantages/disadvantages with alternative optimization techniques for such models. Finally the paper presents a simple example illustrating the potential benefit, in terms of loss minimization and in social welfare, of applying dynamic tariffs