This paper proposes an algorithm for transmission cost allocation (TCA) in a large power system based on nodal pricing approach with multiarea scheme. The nodal pricing approach is introduced to allocate the transmission costs using the nodal pricing control in a single area network. As the number of equations is dependent on the number of buses and generators, this method will be very time consuming for large power systems. To solve this problem, the present paper proposes a new algorithm based on multiarea approach for regulating the nodal prices, so that the simulation time is greatly reduced and therefore the nodal pricing approach can be applicable for large power systems. In addition, in the proposed method, the transmission costs are allocated to the users more equitable than the single area method. Since the higher transmission costs of an area due to its higher reliability are paid only by users of that area in contrast with the single area method, in which these costs are allocated to all users regardless of their locations. The proposed method was implemented on the IEEE 118 bus test system having three areas. The obtained results show that with the application of multiarea approach, the simulation time is greatly reduced and the transmission costs are also allocated to users with less variation in new nodal prices with respect to the single area approach.

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