The long-term impact of transmission pricing

Transmission pricing has been one of the major issues on the ongoing debate about deregulation and privatization. Many papers have dealt with the static nature of the tariff using the incremental and the embedded cost approaches. However, few of them have focused on the dynamic aspects of the tariff and, therefore, on its impact on the long-term expansion planning of both generation and transmission. The main target of this paper is to address some interesting topics about the effect of the transmission pricing methods on system cost in this new environment where generation is treated as an open market and transmission as a monopoly. Some examples with the Brazilian system will illustrate the main points shown in this paper.