A game theoretic approach to cost allocation in the Dutch electricity grid

The aim of this thesis is to formalise cost allocation in the Dutch electricity sector by means of concepts from the theory of cost allocation and cooperative games. Consumers of electricity are connected to one of the seven voltage levels in the electricity grid. Most electricity is fed into the grid at the highest voltage level and is transported to lower voltage levels. Research in collaboration with TNO has shown that a heavy burden of the electricity network costs (in particular transmission-related costs) is born by smallscale consumers connected to lowest voltage level. One of the reasons that small-scale consumers are charged this large share of the costs is because they are also charged for the upstream voltage levels by means of the cascade method. In this thesis we provide a formal framework that models the electricity demand problem, where groups of agents with individual electricity demands are connected to a specific voltage level in the electricity grid and are allocated cost shares by the network operators. This framework provides the opportunity to analyse the cascade rule and several other cost allocation rules for our problem, inspired by and in comparison with rules proposed in the literature on other problems. We provide axiomatic characterizations for three rules differing in the properties they obey. Building on the electricity demand problem we introduce a cooperative cost game and simplified versions of the unionand agentShapley value, assigning cost shares to groups of agents. Also other union values are discussed and evaluated. Hence, cost allocation from practice and theory are combined and formalised by means of a cost allocation and cooperative game theoretic approach.