Long-Run Marginal Cost Pricing Based on Network Spare Capacity

This paper proposes a novel approach for providing long-run marginal cost (LRMC) pricing in network charges. The proposed approach makes use of the unused capacity of an exiting network to reflect the cost of advancing or deferring future investment consequent upon the perturbation of generation or load at each study node on a distribution or transmission network. Compared with existing approaches to LRMC pricing, the proposed approach produces forward-looking charges that reflect both the extent of the network needed to service the generation and/or load, and the degree to which that network is utilized