Tracing prices: A flow-based cost allocation for optimized power systems

TL;DR

This paper introduces a flow-based cost allocation method for power systems that fairly distributes costs of assets to consumers, aligning with locational marginal prices and improving upon existing methods for large networks.

Contribution

It presents a novel flow tracing approach for asset-to-consumer cost allocation in optimized power systems, addressing limitations of previous methods.

Findings

Cost allocation aligns with locational marginal prices.

Applicable to large, complex power networks.

Demonstrated on a future German scenario.

Abstract

Power system models are a valuable and widely used tool to determine cost-minimal future operation and investment under political or ecological boundary conditions. Yet they are silent about the allocation of costs of single assets, as generators or transmission lines, to consumers in the network. Existing cost-allocation methods hardly suit large networks and do not take all relevant costs into account. This paper bridges this gap. Based on flow tracing, it introduces a peer-to-peer or more precisely an asset-to-consumer allocation of all costs in an optimized power system. The resulting cost allocation is both locally constrained and aligned with locational marginal prices in the optimum. The approach is applied and discussed using a future German scenario.