A Study On Two-Part Electricity Pricing

With the development of electric power market in China, Market price mechanism is gaining more and more attention as the reformation. It is one of the most important parts of the electricity market rules, and has direct affects on the benefit of market participants, and even decides whether the reform of electric power market will be successful. Nowadays, two kinds of pricing method are adopted: System-Marginal- Pricing method and Pay-as-Bid Pricing method. But they can't resolve availably the problems caused by market competition, such as capacity withholding and price spiking. The System-Marginal-Pricing method is used currently, The highest bid in dealing generator units will be the uniform clearing price in the whole electric-network, so the generator units which have very low bids will gain large amount of extra profit. Practicality, the majority of the market welfare have supplied to neither the newly built generator units nor the whole society, but instead to the generator units which have no loan burden. This situation is unfortunately in contradiction with the destination of the "maximization of society welfare". The paper analyzed the efficiency of electricity market under different pricing methods. Compared with two running situations (normal and congestion) under system-marginal-pricing method, this paper researches one newly developed method — a Practical Electricity Value Equivalent pricing method in detail. The operation principles of these different pricing methods in electricity market were explained, their strong and weak points were stated, and their shortcomings under certain situations were made clear on the basis of careful analysis.The paper took deep investigation on the two-part electricity pricing method, from the aspects of electricity cost structure, social benefit, and resource optimization. The phenomena of capacity withholding and price spiking were analyzed. The findings from this research are: using the two-part pricing method suggested by this paper(the reasonable separation and interaction of the electricity cost price and the capacity cost price), concerning the actual situation of the world electricity market, and providing suitable government regulation to the domestic electricity market, we could effectively reduce capacity withholding and overcome the shortages of the methods that currently in use. If the two-part electricity pricing method studied in this paper is used, the abnormal high profit of some electricity generators will be reduced, the electricity price will become reasonable, The funds will be saved to return to newly units or consumers in different ratio. As a result, the electricity cost of the whole power network will be minimized and the social welfare will be maximized.