Abstract:
The present paper attempts at a contribution to peak load pricing,
in both theory and application. The general result from the traditional
theory that charges the off-peak consumers marginal operating costs
only and the peak users marginal operating plus marginal capacity costs,
since it is the on-peakers who press against capacity, has already been
called into question in the literature. It has also been shown that the
equity norms are violated in the traditional peak load pricing, whereby
off-peak users pay no capacity charges, but are supplied output out of
the capacity, ‘bought/hired’ by the on-peakers. Theoretical attempts at
modification have proved that the traditional conclusion holds only for
homogeneous plant capacity (e.g., in one plant case), and in economic
loading of two or more plants, the off-peak price also includes a part of
capacity costs. This paper, however, shows that if the off-peak period
output is explicitly expressed in terms of capacity utilisation of that
period, the result will be an off-peak price including a fraction of the
capacity cost in proportion to its significance relative to total utilisation.
This would appear as a general case, irrespective of the nature of
generation technology, that is, even when there is only one plant. We
also give an illustration by estimating marginal costs and peak load
prices using time series data on the Kerala power system. Where the data
are incapable of yielding the required statistically determined long-run
relationship among the variables under study, we propose a simple and
viable method of using discrete ratio of increments in lieu of a marginal
value.
