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Removing Cross-Border Capacity Bottlenecks in the European Natural Gas Market—A Proposed Merchant-Regulatory Mechanism

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  • Anne Neumann
  • Juan Rosellón
  • Hannes Weigt

Abstract

We propose a merchant-regulatory framework to promote investment in the European natural gas network infrastructure based on a price cap over two-part tariffs. As suggested by Vogelsang (J Regul Econ 20:141–165, 2001 ) and Hogan et al. (J Regul Econ 38:113–143, 2010 ), a profit maximizing network operator facing this regulatory constraint will intertemporally rebalance the variable and fixed part of its two-part tariff so as to expand the congested pipelines, and converge to the Ramsey-Boiteaux equilibrium. We confirm this with actual data from the European natural gas market by comparing the bi-level price-cap model with different reference cases. We analyze the performance of the regulatory approach under different market scenarios, and identify relevant aspects that need to be addressed if the approach were to be implemented. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Anne Neumann & Juan Rosellón & Hannes Weigt, 2015. "Removing Cross-Border Capacity Bottlenecks in the European Natural Gas Market—A Proposed Merchant-Regulatory Mechanism," Networks and Spatial Economics, Springer, vol. 15(1), pages 149-181, March.
    • Handle: RePEc:kap:netspa:v:15:y:2015:i:1:p:149-181
    DOI: 10.1007/s11067-014-9273-3
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    Cited by:

    1. Kuper, Gerard & Mulder, Machiel, 2013. "Cross-border infrastructure constraints, regulatory measures and economic integration of the Dutch - German gas market," Research Report 13001-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    2. Kuper, Gerard H. & Mulder, Machiel, 2016. "Cross-border constraints, institutional changes and integration of the Dutch–German gas market," Energy Economics, Elsevier, vol. 53(C), pages 182-192.
    3. Zenón, Eric & Rosellón, Juan, 2017. "Optimal transmission planning under the Mexican new electricity market," Energy Policy, Elsevier, vol. 104(C), pages 349-360.
    4. repec:dgr:rugsom:13001-eef is not listed on IDEAS
    5. Kerstin Dächert & Sauleh Siddiqui & Javier Saez-Gallego & Steven A. Gabriel & Juan Miguel Morales, 2019. "A Bicriteria Perspective on L-Penalty Approaches – a Corrigendum to Siddiqui and Gabriel’s L-Penalty Approach for Solving MPECs," Networks and Spatial Economics, Springer, vol. 19(4), pages 1199-1214, December.
    6. D. Khastieva & M. R. Hesamzadeh & I. Vogelsang & J. Rosellón, 2020. "Transmission Network Investment Using Incentive Regulation: A Disjunctive Programming Approach," Networks and Spatial Economics, Springer, vol. 20(4), pages 1029-1068, December.
    7. repec:dgr:rugsom:13004-eef is not listed on IDEAS

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    More about this item

    Keywords

    Regulation; Natural gas network; Investment; Europe;
    All these keywords.

    JEL classification:

    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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