Optimal transmission line pricing algorithm for a restructured power system

Prior to this present era of privatization and commercialization, effort towards electricity pricing was geared towards allocating cost only to generation and distribution segments. This was accepted then considering the fact that power utilities were either wholly owned by either governments or by primary consumers made up of corporate bodies. In view of the current trend of transformation of electricity sectors in most countries of the world from vertically integrated utility to unbundled and competitive set-ups driven by market forces, there is now the dire-need to provide a fair and effective mechanism for appropriate pricing of all units in the power industry - generation, transmission and distribution. This is imperative as each of these sectors are now been operated by different bodies with little or no control by the government and many consumers of electricity, with attendant increased competition aimed at reducing cost while enhancing efficiency. From the experiences of most developed countries like U.S.A and many European countries who had embraced this new concept of power utilization, load is the most important price driver. An independent operational control of transmission grid in a restructured industry would facilitate a competitive market for power generation and direct retail access. The transmission system plays a pivotal role in the efficient delivery of electrical power to the consumers, hence is very critical in the emerging trends in developing countries' power transformation and electricity markets. To this end, a proper transmission pricing would motivate investors to build new generating capacity for improving efficiency. This paper, therefore, focuses on developing a novel transmission pricing algorithm using Bialek's tracing model.