Can you use electricity transmission usage fees to reduce demand peaks?

Research output: Contribution to conferencePaper

Abstract

In most energy markets, transmission system operators charge wholesale consumers (and sometimes producers) usage fees to cover their investment costs. These usage fees are usually calculated based on some weighted average of wholesalers’ own peak demand and total demand. In the British market, conversely, these usage fees are mostly based on wholesalers’ demand during system peaks. This is supposed to incentivise a form of demand response: during system peaks, wholesalers have strong incentives to reduce their demand. However, it also introduces gaming opportunities.

This paper examines if such a transmission charging method can be effective in reducing demand peaks. It adapts methods from discrete choice theory to allow for explicit modelling of end-use demand uncertainty and of strategic interactions between wholesale consumers in a stylised market model. The results show that both the uncertainty and the strategic interactions are important. In a market with homogeneous wholesalers, charging methods based on average demand, own peak demand, or own demand during system peaks all result in the same total demand reduction. Charges based on system peaks result in the largest peak demand reduction if all individual consumers’ demands peak simultaneously. If this is not the case, as may happen in larger markets, gaming opportunities may cause this charging method to become counterproductive. The effectiveness of all charging methods reduces with the amount of uncertainty in the market.
Original languageEnglish
Publication statusUnpublished - 30 Oct 2015
EventTransatlantic Infraday - Federal Energy Regulatory Commussion, Washington, D.C., United States
Duration: 30 Oct 201530 Oct 2015

Conference

ConferenceTransatlantic Infraday
CountryUnited States
CityWashington, D.C.
Period30/10/1530/10/15

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