Long-term transmission rights and dynamic efficiency

Georgios Petropoulos, Bert Willems

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We compare market designs for access regulation of a bottleneck transmission line, and study their impact on investment decisions by an incumbent firm with an existing dirty technology and entrant with an uncertain future low-carbon technology. Nodal pricing, which allocates network access on a short-term competitive basis, distorts investment decisions, as the incumbent preempts the entrant by investing early. Long-term tradable transmission rights restore investment efficiency: the incumbent's investment timing becomes socially optimal. This is the case for financial and physical transmission rights, but it requires the existence of a secondary market for transmission rights.
Original languageEnglish
Article number104714
JournalEnergy Economics
DOIs
Publication statusE-pub ahead of print - Feb 2020

Keywords

  • network access
  • congestion management
  • renewable energy sources
  • power markets

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