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1.1 P ROPIEDADES DE LA ROCA Y FLUIDOS

2.1.3 Eficiencia areal de barrido

This section briefly reviews main principles of the pricing of network services and the main structure of network tariffs. In effect, network tariffs specify how the transportation of electricity is priced. The underlying pricing principles for electricity transportation are in effect crucially different from normal freight pricing, which often may be based on a per-unit cost reflecting the marginal cost of transportation, and where the price often is related to the

transport distance. In contrast electricity exhibits several special features, with special implications for transportation pricing in this sector:

- Sub-additive cost function: The cost function of transmission and distribution may be characterized as a sub-additive function, with marginal costs lower than average costs. - Loop-flow features: Power injected to in the network may broadly be characterized as a pool of energy, where the actual power flow in the grid follows from physical laws and the overall monitoring of system balance. These physical relations are important in defining tariffs as well as handling congestion, and are closer described in section 5.2. Here we note that the path of a given transaction is not determinable, and that the resulting power flow follows from the entire power flow of the grid, rather than the attributes of the individual power transaction.

- Capacity constraints and congestion: The network has a given capacity. This capacity cannot be exceeded, as any ‘overload’ would result in an immediate blackout. The term network congestion refers to the scenario of which the planned net demand implies a power flow for a given transmission line which exceeds its actual capacity. Measures must be taken so that an actual ‘overload’ does not occur.

To sum up, and without going into detail, the main implications of these features for constructing tariffs for transmission and distribution are:

- Two-part tariff: With a per-unit cost equaling marginal costs, revenues would not cover total costs of transmission. Furthermore, a per-unit price which is higher than marginal costs, might unduly discourage use of the grid and is thus inefficient from an economic standpoint. The implication of this is the use of a two-part tariff; a fixed fee with the main function of covering costs, and a per-unit fee to cover marginal costs such as losses.

- Point tariff: Due to the loop-flow features, the marginal cost of a given transaction between a given seller and a given buyer is not related to the distance or specific connection between these two parties. The implication is here that the per-unit part of the tariff should be independent of distance.

- Congestion fee: An objective of congestion management is to ensure an efficient electricity allocation which is feasible within the given network. Demand for transmission is derived from the underlying energy demands and supplies. Congestion must thus be handled by adjusting demand or supply. An efficient handling of

congestion thus implies that changes in demand and supply must be in accordance with the underlying willingness to pay or marginal production costs. In broad terms, the transmission tariff thus has to incorporate some form of a congestion fee. A further discussion of congestion management is contained in section 5.2.

Following the market reform, there was a thorough revision of the old tariff system presenting a new structure based on new pricing principles. The new tariff structure reflected these three main ingredients. The main change was that the former ‘channel’ charges were replaced by so-called point charges. Here the charges solely depend on the volume and place where power is being fed into or tapped from a connection point in the grid, and not on the (artificial) notion of the path taken. Each agent is charged for the transportation tariff by the owner of the grid to which he is connected, and the grid owner only pays the connection charge to the grid to which he in turn is connected. For example, a distribution company pays for its connection to the regional grid, and a regional grid owner to the main grid. The transmission tariff after the market reform (1992) consisted of the following parts:

a) Energy charge: The energy charge is a variable charge and consists of two parts: The marginal loss rate for feeding and tapping the central grid was in principle differentiated according to low-load and peak-load periods of the week, and summer and winter periods across the year. The congestion charge was placed on all power in bottleneck situations. This was a market-based positive (negative) charge on demand (supply) on the deficit side of the bottleneck, and a negative (positive) charge on demand (supply) on the surplus side.

b) Connection charge: This is a fixed charge, which is not dependent upon the amount of energy delivered or supplied on the net. The basis for calculating the charge was the sum total of generating capacity and demand in a situation of a national peak load behind every connection point in the central grid system. This charge also applied to grid owners in other levels, where the grid owner pays the connection charge only to the grid to which he is connected.

c) Power charge: This too was a fixed charge, not dependent upon the varying energy amounts transferred. The basis for calculating this charge was the measured power exchange with the central grid in a situation of a potential peak load, adjusted for available unused generating capacity. As for the connection charge, this also applies to grid owners of regional or distribution networks connecting to the transmission grid.

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