The Impact of Potential-Based Physics Models on Pricing in Energy Networks

24 Pages Posted: 9 Jul 2015 Last revised: 29 Nov 2018

See all articles by Lars Schewe

Lars Schewe

University of Edinburgh

Martin Schmidt

Trier University

Date Written: November 28, 2018


Pricing of access to energy networks is an important issue in liberalized energy sectors because of the natural monopoly character of the underlying transport infrastructures. We introduce a general pricing framework for potential-based energy flows in arbitrarily structured transport networks. In different specifications of our general pricing model we discuss first- and second-best pricing results and compare different pricing outcomes of potential-free and potential-based energy flow models. Our results show that considering nonlinear laws of physics leads to significantly different pricing results on networks and that these differences can only be seen in sufficiently complex, e.g., cyclic, networks as they can be found in real-world situations.

Keywords: Energy Networks, Pricing, Gas Networks, Electricity Networks

JEL Classification: C61, L94, L95

Suggested Citation

Schewe, Lars and Schmidt, Martin, The Impact of Potential-Based Physics Models on Pricing in Energy Networks (November 28, 2018). Available at SSRN: or

Lars Schewe

University of Edinburgh ( email )

James Clerk Maxwell Building
Peter Guthrie Tait Rd
Edinburgh, EH9 3FD
United Kingdom

Martin Schmidt (Contact Author)

Trier University ( email )

Trier, 54286

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