Capacity Charges: A Price Adjustment Process for Managing Congestion

In this paper we suggest a procedure based on capacity charges for managing transmission constraints. The system operator states nodal capacity charges for transmission prior to market clearing. Market clearing brings forth a single market price for energy. For optimal capacity charges the market equilibrium coincides with that of nodal pricing. Capacity charges are based on technical distribution factors and estimates of the shadow prices of network constraints. Estimates can be based on market information from similar congestion-situations, or they can be adjusted near the optimal values through an iterative process.