Computation and decomposition of spot prices for transmission pricing

Marginal cost pricing is widely recognized as the core of any sound approach to economic valuation of transmission services. This paper presents results that help to recognize and to compute the several components of the spot prices, so that the contributions of each user to the network costs can be identified and understood. The paper analyzes, both theoretically and computationally, the potential use of a decomposition of the spot price ρk of any node k into a generator component γ and a network component ηk, which is a prerequisite to precisely define separate markets for generation and transmission. The notions of "slack node" and "system lambda" are revisited and several new properties of the spot prices, which can be useful in interpreting the numerical values of network spot prices in large power systems, are presented. The results have been checked in large networks and are illustrated with numerical examples.