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Investment Paradoxes in Electricity Networks

In: Pareto Optimality, Game Theory And Equilibria

Author

Listed:
  • Mette Bjørndal

    (Norwegian School of Economics and Business Administration)

  • Kurt Jørnsten

    (Norwegian School of Economics and Business Administration)

Abstract

The famous Braess' paradox, which sometimes occurs in user-optimal traffic equilibrium models, demonstrates that adding a new link to the network may lead to a degradation in network performance. User-equilibrium is characterized by each user competing noncooperatively for the network resources by choosing the path that is best for himself, without paying attention to the effect this has on the other users (eventually including himself). Similar effects occur in congested electricity networks, where flows follow Kirchhoff's junction rule and loop rule. Thus, due to the special nature of electricity networks, we show that grid investments, which at first sight seem an improvement of the grid, may prove to be detrimental to social surplus, even without considering investment costs. Moreover, some agents will have incentives to advocate these changes. It is also demonstrated that a thermal limit, which is internal to a market, may result in market integration being disadvantageous. The possibility of such paradoxical effects, and the incentives that they provide to different agents, should clearly be taken into consideration both in the process of grid development and market development.

Suggested Citation

  • Mette Bjørndal & Kurt Jørnsten, 2008. "Investment Paradoxes in Electricity Networks," Springer Optimization and Its Applications, in: Altannar Chinchuluun & Panos M. Pardalos & Athanasios Migdalas & Leonidas Pitsoulis (ed.), Pareto Optimality, Game Theory And Equilibria, pages 593-608, Springer.
    • Handle: RePEc:spr:spochp:978-0-387-77247-9_23
    DOI: 10.1007/978-0-387-77247-9_23
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