Research on the allocation mechanism of the LMP-based electricity market surplus

Locational Marginal Pricing (LMP) is a novel pricing electricity approach based on short term marginal cost. Compared to the conventional average accounting cost method, the LMP has the merits of real time reflecting electric energy´s production cost, stimulating the customers´ reasonable electricity consumption and reducing cross subsidies, etc. But the difference among different LMPs results in the market surplus on the spot market settlement, which is regarded as network rental. How to reasonably deal with this market surplus is of significance to improve market competition and ensure fair competition. This paper first gives the proof that market surplus is theoretically greater than zero, but affected by many factors; then compares the four allocation methods: transmission right, bilateral contract, receiving electric energy and transmission fee. Then the paper proposes an approach on allocating the market surplus based on transmission usage. Lastly the treatment to surplus deficiency is discussed.