Security related long-run marginal cost analysis of transmission services

Wheeling is one of the approaches available for opening the transmission access conditions in interconnected systems. Each utility in an interconnected system has the obligation to guarantee sufficient transmission capability to maintain an efficient, economical, reliable and secure system during peak scenarios. Security is an important consideration underlying network investment. The standards of service have a direct impact on investment burdens and therefore require clear specification and agreement by the parties involved. Charging for transmission services, ensuring the investment levels and recovery of sunk capital are properly addressed are new problems now receiving attention in the context of electricity supply industry unbundling. It is proposed in this paper that the charge for the use of transmission capacity for firm, long-term wheeling transactions should be based on the incremental use of each utility's transmission network at times of peak flow. The security related long-run marginal cost of transmission capacity is based on the long term costs of transmission investment requirement.