Network tariffs under different pricing schemes in a dynamically consistent framework

Adequately designed prices are essential to achieve efficient coordination between the electricity network and market participants. However, consumer prices comprise several, possibly distorting price components. In an analytical model, we examine different regulatory settings, consisting of alternative spot market pricing schemes and network tariff designs in a dynamic context. While a setting with zonal pricing and fixed network tariffs achieves the highest welfare, a deviation of either the pricing scheme or the network tariff design leads to inefficiencies. However, we show that two inefficiently designed price components can be better than one, especially if network tariffs correct for the static inefficiency of the pricing scheme. Besides the network tariff design, network operators must pay attention to the allocation of network costs. It affects spatial price signals and, therefore, the dynamic allocation of investment decisions. Considering these decisions in a dynamic framework increases the requirements for the configuration of network tariffs, especially with volume-based network tariffs.