On zonal pricing for congestion management

Abstract

This paper is concerned with zonal pricing as an approach to congestion management. The main contributions of the paper are summarized as follows. Algebraic characterization of optimal zonal prices is presented, where physical tie-line limits are explicitly accounted for without introducing conservatism. In a case of affine bids, it is shown that the optimal zonal price in a zone can be represented as appropriately defined weighted average of auxiliary nodal prices in that zone. The weights used for averaging are directly derived from the bids made to the market. A novel numerical algorithm for computing optimal zonal prices is presented. The advantageous feature of the algorithm is that it can be implemented in a distributed fashion. An example is presented to illustrate and support the theoretical contributions of the paper.