Chapter 74 Transmission Constraints, Incentive Auction Rules and Trader Experience in an Electric Power Market

The assumption that under optimal nodal pricing passive transmission line owners collect all the congestion rents on a constrained line, as well as incremental loss rents, is not supported by the experimental results in a three-node radial network system with four buyers and six generators at two dispersed location. The transmission function is served passively; i.e., revenue accruing to a line is a residual rent. This network provides a very simplified, aggregated, representation of the United Kingdom grid. London is at the center, and is by far the dominant buyer node. The major generation complex is to the north of London with the power lines bringing power into the London metropolitan region subject to constraint when winter peak demand is heavy. A smaller generation complex is to the south of London where there are controversial proposals to locate new generation capacity on the coast.