Allocation of transmission losses to bilateral contracts in a competitive environment

Under open access, market driven transactions have become the new independe nt decision variables defining the behavior of the power system. Understand ing the impact of bilateral transactions on system losses is important to b e able to allocate a corresponding loss component to each individual transa ction and improve economic efficiency. The theory presented here is based o n the argument that it is always possible to compute the exact loss allocat ion corresponding to an infinitesimal bilateral transaction. This leads to a set of governing differential equations whose solution yields the loss al location for contracts of any size. Several examples illustrate the propert ies of both the proposed allocation equations and other methods, the depend ence of the proposed solution on the path of integration, and a number of i mplementation issues.