Journal of Modern Power Systems and Clean Energy

ISSN 2196-5625 CN 32-1884/TK

Why Marginal Pricing?

Department of Integrated Systems Engineering and the Department of Electrical and Computer Engineering,The Ohio State University, 43210, Columbus Ohio, USA

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    Under perfect competition, marginal pricing results in short-term efficiency and the subsequent right short-term price signals. However, the main reason for the adoption of marginal pricing is not the above, but investment cost recovery, that is the fact that the profits obtained by infra-marginal technologies (technologies whose production cost is below the marginal price) allow them just to recover their investment costs. In addition, if the perfect competition assumption is removed, investment over-recovery or under-recovery generally occurs for infra-marginal technologies.

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  • Received:February 04,2023
  • Revised:February 09,2023
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  • Online: May 23,2023
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