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 language | English |
|---|---|
| Article number | 104714 |
| Journal | Energy Economics |
| Volume | 88 |
| Early online date | Feb 2020 |
| DOIs | |
| Publication status | Published - May 2020 |
Keywords
- network access
- congestion management
- renewable energy sources
- power markets