Applying Mathematical Programming to Measure Electricity Marginal Costs

Marginal costs defined as the additional costs needed for meeting additional electricity demand are estimated by using separable programming model analysis. The shadow prices obtained with a linear programming optimal solution are transformed into marginal costs corresponding to the spontaneous peak, peak, middle, and off-peak time periods in the load duration curve. Marginal cost corresponding to the spontaneous peak time period, which is interpreted as the capital cost increase minus the fuel cost saving, is represented as the sum of those two costs by using the inverse of the optimal basis matrix of the linear programming model.