Energy-Grade Double Pricing Rule in the Heating Market

TL;DR

This paper introduces an energy-grade double pricing rule for heat markets to address revenue adequacy issues caused by heat's non-homogeneous nature, using shadow prices and decomposition methods.

Contribution

It proposes a novel pricing mechanism that accounts for heat grades, ensuring revenue adequacy and interpretability through shadow prices and surplus decomposition.

Findings

The proposed pricing rule guarantees revenue adequacy.

Simulation results confirm the mechanism's effectiveness.

The method decomposes surplus into interpretable parts.

Abstract

The problem of heat system pricing is considered. A direct extension of locational marginal prices (LMP) in electricity markets to heat systems may lead to revenue inadequate issues. The underlying reason for such a problem is that, unlike electric power, heat has different grades and cannot be considered as homogenized commodity. Accordingly, an energy-grade double pricing rule is proposed in this paper. Heat energy and grade prices are explained as the shadow prices related to the nodal heat balance constraints and temperature requirements constraints at the optimal solution. The resulting merchandise surplus at each dispatch interval can be decomposed into several explainable parts, namely, congestion rent, impact from the last period, and impact from the upcoming period. And the total merchandise surplus over all dispatch intervals can be decomposed into several non-negative interpretable parts, including congestion rent and impact from the initial state, thus guaranteeing the revenue adequacy for the heat system operator. Simulations verify the effectiveness of the proposed mechanism.