Generation-demand Oriented Transmission Pricing Mechanism and Congestion Charge Allocation

Reasonable transmission and distribution pricing mechanism can guide investment of grid and generation, so as to ensure the sustainable development of low-carbon and zero-carbon power systems. At present, China’s transmission and distribution pricing mechanism cannot provide a clear locational signal, while there is a lack of financial tools for electric power markets to effectively hedge the congestion risk. Therefore, this paper proposes a mechanism combining transmission pricing and congestion revenue allocation based on actual circumstances in China. Firstly, customers of the transmission system, including both generation and demand sides, share transmission costs and obtain corresponding financial transmission rights (FTRs); thus, the locational signal can guide the investment in power generation by transmission tariff. Secondly, transmission congestion charges, which are accumulated during a specific period to each holder of FTRs in proportion, are distributed to help generators effectively hedge congestion risk. The proposed mechanism ensures the unification of the responsibilities, rights, and interests of the transmission tariff payers, by integrating the PJM’s FTR auction transaction mechanism and the UK’s transmission pricing method. Finally, this paper verifies the effectiveness and feasibility of the proposed mechanism to guide the optimal allocation of resources through simulation studies on the IEEE 9-bus standard system.