| Summary: | This paper is about one aspect of Britain's electricity trading system, its advantages and its weaknesses concerning the incentives it provides or fails to provide for the location of generation. (Similar considerations apply to the location of loads, though these are less responsive to locational influences exerted by the trading system). The optimal location of generation in the short-run is a matter of determining the unit commitment and dispatch of the existing generation park so as to minimise the cost of generation hour by hour, subject to security constraints and taking account of transmission losses. In the long-run, choices of the locational pattern of new plant construction and of the decommissioning of old plant should be influenced by their effects upon the cost of the transmission investment that they entail. In systems with a gross pool, such as in New York, Ireland and New Zealand, there is a central dispatch. This, taking account of transmission losses and constraints, can produce locational marginal prices. Expectations concerning their future levels provide signals relevant to the location of new generation. Thus both in the short-run and in the long-run these systems provide locational incentives. In some of them, where the long run incentives to investment provided by the uncertain prospect of future price spikes are deemed insufficient, capacity requirements are imposed upon (what in Britain are called) "suppliers". These too can embody a locational element, as in the LICAP arrangements in New York and proposed for New England.
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