A Causation-Based Framework for Pricing and Cost Allocation of Energy, Reserves, and Transmission in Modern Power Systems

2025-05-30

AI Summary

Inaccurate cost allocation for operating reserves and transmission services under high uncertainty undermines power system reliability and economic efficiency. Method: This paper proposes a causality-based nodal joint pricing framework. It formulates an optimal power flow model incorporating N-1/N-k contingency constraints, jointly dispatching energy, spinning reserves (up/down), and transmission services. A novel safety surcharge mechanism and Causal Locational Marginal Pricing (Causal LMP) are introduced, coupled with cost attribution analysis to incentivize reliability investment and compensate transmission assets based on their full-contingency usage value. Contribution/Results: The framework explicitly defines prices for multiple ancillary and transmission services and establishes a closed-loop mechanism linking cost, responsibility, and incentive. Validation on two test systems demonstrates revenue adequacy and price neutrality, while significantly improving cost reflectivity, market efficiency, and system reliability.

Technology Category

• Planning, Routing, and Scheduling: Scheduling under Uncertainty
• Reasoning under Uncertainty: Causality
• Constraint Satisfaction and Optimization: Distributed CSP/Optimization

Application Category

• Economics, Online Markets and Human Computation: Incentives in network design for Web infrastructures and ecosystems
• Security and Privacy: Data transparency and provenance
• Responsible Web: Algorithmic accountability and transparency on the web

Abstract

The increasing vulnerability of power systems has heightened the need for operating reserves to manage contingencies such as generator outages, line failures, and sudden load variations. Unlike energy costs, driven by consumer demand, operating reserve costs arise from addressing the most critical credible contingencies - prompting the question: how should these costs be allocated through efficient pricing mechanisms? As an alternative to previously reported schemes, this paper presents a new causation-based pricing framework for electricity markets based on contingency-constrained energy and reserve scheduling models. Major salient features include a novel security charge mechanism along with the explicit definition of prices for up-spinning reserves, down-spinning reserves, and transmission services. These features ensure more comprehensive and efficient cost-reflective market operations. Moreover, the proposed nodal pricing scheme yields revenue adequacy and neutrality while promoting reliability incentives for generators based on the cost-causation principle. An additional salient aspect of the proposed framework is the economic incentive for transmission assets, which are remunerated based on their use to deliver energy and reserves across all contingency states. Numerical results from two case studies illustrate the performance of the proposed pricing scheme.

Problem

• Allocating costs for energy, reserves, and transmission efficiently
• Pricing operating reserves for critical power system contingencies
• Ensuring revenue adequacy and reliability incentives in electricity markets

Innovation

• Causation-based pricing for energy and reserves
• Security charge mechanism for market operations
• Nodal pricing ensuring revenue adequacy and neutrality