Improving Investment Coordination in Electricity Networks Through Smart Contracts
AbstractSmart contracts based on voluntary participation and optionality can be a low transaction cost solution to implement locational signals in distribution networks and thereby avoid network investment. This paper examines the efficiency properties of smart contracts. Based on a three-node example network we show that cases exist in which smart contracts can achieve a pareto-improvement compared to the status-quo even with voluntary participation. With the pareto improvement at least one party is better of under a smart contract without worsening the situation for anyone else. We note that this requirement is very restrictive and leaves significant potential for efficiency improvements by smart contracts untapped. We then discuss the implementation of smart contracts with incentive regulation. There are two main tasks for the regulator: allowing network operators flexibility to offer such contracts and incentivizing network operators to do so.
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Bibliographic InfoPaper provided by Bremer Energie Institut in its series Bremen Energy Working Papers with number 0010.
Length: 27 pages
Date of creation: Sep 2011
Date of revision:
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Web page: http://www.bremer-energie-institut.de/
network investment; distribution networks; locational pricing; smart contracts;
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-13 (All new papers)
- NEP-ENE-2011-12-13 (Energy Economics)
- NEP-NET-2011-12-13 (Network Economics)
- NEP-REG-2011-12-13 (Regulation)
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