On allocation of the transmission network losses using game theory

One of key elements of liberalized markets being faced by consumer is a transparent cost structure of electricity supply. Part of this cost corresponds to the coverage of losses in the network. Several approaches to loss allocation exist, most commonly such as, charging in proportion to consumed energy or location marginal pricing. The first method fails to accurately link the consumption with the cause of losses. The second approach tends to be very sensitive to the change of parameters of the problem. Therefore, they do not fully satisfy criteria imposed on an allocation method: transparency and fairness. According to game theory, a fair and a transparent allocation of cost can be achieved using a concept of Shapley value. This paper presents a methodology and studies some properties of loss allocation mechanism using Shapley value.