Network cost allocation in the internal electricity market of the EU: Two main approaches for inter-TSO payments calculation

Abstract

Parties taking part in the process of implementation of the Internal Electricity Market (IEM) of the European Union have agreed to establish a system of “inter-Transmission System Operators (TSO) payments”, whereby countries are compensated and must compensate others because of the external use that is made of one another’s networks. Several methods have been considered so far for the computation of these economic compensations and they correspond to two basic approaches. The first approach consists of assigning the use of each individual facility to generation and load nodes and aggregating the results at country level. The second approach starts by determining the transit flow for each country and then computes the global effects of this transit on the internal flows of the country. This paper compares both approaches and determines their strong and weak points in the context of the process of implementation of the IEM. Quantitative results, which have been obtained with a model of the UCTE including 17 European countries, are used to support the methodological conclusions.