Loss and line flow allocation in a competitive environment

Under open access, market driven transactions have become the new independent decision variables defining the behaviour of electric power systems. Understanding the impact of these bilateral transactions on system losses and line loading is important for the secure operation of the network and for establishing equitable tariffs corresponding to actual network use. The theory presented here is based on the argument that it is always possible to compute the exact loss and line loading allocation corresponding to an infinitesimal variation in a bilateral transaction. This leads to a set of governing differential equations whose solution yields the exact allocation. Numerical examples illustrate the properties of both the exact and approximate solutions of the allocation equations, as well as their dependence on the path of integration. The exact solutions are also compared with those obtained using pro-rata methods, DC power flow formulations, and contract paths. Lastly, practical applications of the allocation algorithm are suggested and discussed