Cost Recovery and Short-Run Efficiency
When designing a tariff for the transport of electricity, the main difficulty is that the transport industry apparently incurs high fixed costs and no real variable cost. In effect, when the infrastructure is installed and when the operators are at their workplace, the only input which is necessary to deliver electricity at a given withdrawal node is electricity at some injection node since electricity is flowing by itself. Consequently, at first sight the problem is just to allocate fixed costs, mainly infrastructure maintenance costs, wages and financial charges, among the different types of users of the grid.
KeywordsMarginal Cost Optimal Allocation Electricity Network Transport Infrastructure Cost Recovery
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