Electricity Transmission Pricing: How
much does it cost to get it wrong?
Economists know how to calculate optimal prices for electricity
transmission. These are rarely applied in practice. This paper develops a thirteen node
model, based on the transmission system in England and Wales, incorporating losses and
transmission contraints. It is solved with optimal prices, and with uniform prices for
demand and generation, but re-dispaching to take account of transmission contraints.
Counting consumer surplus and generators' operating cost alone, moving from optimal prices
to uniform prices reduces welfare by 0.7% of the generators' revenue. A less efficient
re-dispatch could raise these cost significantly.