Moving Beyond Transaction-Based Transmission Charges: Quantitative Evidence from the West African Power Pool

M.A.E. Elabbas, L. Olmos, F. Riva, J. Abayateye, I.J. Pérez-Arriaga

Summary:

Regional transmission cost allocation (RTCA) is essential for enabling efficient cross-border electricity trade and supporting the development of regional networks. Although transaction-based transmission charging has largely been abandoned in mature electricity markets, it continues to be applied or considered in several emerging regional power pools, particularly in Africa. While its theoretical limitations are recognised, their practical implications for transmission charges and market development have rarely been quantified using real-world systems. This paper presents a quantitative assessment of two fundamentally different RTCA approaches in the West African Power Pool (WAPP): the transaction-based MW-km method and the network-usage-based Average Participation Method (APM). The analysis is based on the regulatory assessment undertaken during the revision of the WAPP Regional Transmission Tariff Methodology and compares the two methods using a structured set of technical and economic indicators. The results show that the MW-km method overestimates network utilisation for several transactions due to artificial loop flows created by individual transaction simulations, producing transmission charges that exceed those of the APM by more than an order of magnitude in some cases. Consequently, it generates inefficient economic signals, discriminates among users with equivalent network usage, and increases the cost of cross-border electricity trade. By contrast, the APM allocates costs according to the actual physical utilisation of the interconnected network, resulting in more cost-reflective, non-discriminatory, and scalable transmission charges. The findings provide empirical evidence that regional transmission charging should move away from allocating the costs according to commercial transactions to allocating them according to physical utilisation.

Spanish layman's summary:

El artículo analiza dos enfoques de asignación de costes en el Pool Eléctrico de West África: el basado en las transacciones MW-km y el Método de Participación Media, basado en el uso de la red, y demuestra que el enfoque basado en las transacciones aumenta los costes y desalienta el comercio transfronterizo.

English layman's summary:

The paper assesses two fundamentally different cost allocation approaches in the West African Power Pool: the transaction-based MW-km and the network-usage-based Average Participation Method, showing that the transaction approach increases costs and discourages cross-border trade.

Keywords: Regional Transmission Cost Allocation, West African Power Pool, Average Participations, Commercial Transactions, Quantitative Assessment

Registration date: 21-jul-2026