The Impact of Potential-Based Physics Models on Pricing in Energy Networks
22 Pages Posted: 9 Jul 2015 Last revised: 15 Jun 2018
Date Written: July 9, 2015
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
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