Shapley value analysis of distribution network cost-causality pricing

Distribution network capacity and services are ideally priced according to the cost-causality principle, where customers are charged according to the extent to which they are responsible for additional network capacity. As such, optimal network pricing should be forward-looking, reflecting the long-run marginal cost of providing network services. Since network investment costs are driven by peak demand, it is imperative that tariffs are demand-based and are able to provide efficient price signals to customers. In this paper, we evaluate customer’s contribution to the collective peak demand of a capacity distribution network and then calculate their fair cost share using Shapley value analysis. In light of the computational requirements of these calculations, we use a sample-based approach to approximate the Shapley value with reasonable accuracy. We then employ customer yearly load profiles in the Solar Home Electricity Data to test the efficacy of our methodology.