A novel ex-ante tariff scheme for cost recovery of transmission investments under elasticity of demand

Authors: A De Paola, I Savelli, T Morstyn

Published in: 2020 17th International Conference on the European Energy Market (EEM) https://doi.org/10.1109/EEM49802.2020.9221874

Date Published: 13 October 2020


This paper proposes the application of ex-ante dynamic network tariffs for the recovery of investment costs in transmission network planning. The tariffs design is integrated in the long-term network expansion problem and in the underlying market clearing process, accounting for the impact of tariffs on the bidding strategies of price-responsive participants. Differently from the established ex-post approach, this method avoids negative surplus for marginal users and untruthful biddings. The methodology is described analytically and applied to a relevant case study, which demonstrates the positive effect of ex-ante tariffs in terms of increased social welfare, emphasizing their positive impact in scenarios with high price-elasticity of demand.

Keywords: Tariff design; network planning; bilevel optimization

Insights for EnergyREV:

A new tariffs design is integrated into  long-term network expansion and market clearing. Differently from established ex-post tariffs, this method avoids negative surplus for marginal users and untruthful bidding. This increases social welfare, particularly when there is demand with high price-elasticity.