Security cost allocation of transmission networks applied in a course of the electricity market

The developing competition in the electric utility industry is likely to see a substantial change in the way the industry operates. It is certainly agreed that the decades of regulatory transmission tariffs will give way in the near future to a new deregulated marketplace where the fast, accurate, and equitable means of allocating the transmission embedded costs to market participants will become more widely accessible and prevalent. In this overall perspective, this paper primarily sets out to investigate the assigning of transmission embedded costs to individual generators in two aspects: one part that reflects transmission network capacity-use under normal state and the other part that proposes reliability benefits under failure state largely because the security leaves much room for consideration in the transparent cost allocation. Finally, the proposed method is illustrated using a simple 6-bus test system, which offers both conceptual accuracy and computational efficiency. Copyright (c) 2006 John Wiley & Sons, Ltd.