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Improving Investment Coordination in Electricity Networks Through Smart Contracts

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  • Christine Brandstätt
  • Gert Brunekreeft
  • Nele Friedrichsen
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    Abstract

    Smart 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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    File URL: http://www.bremer-energie-institut.de/download/bewp/bewp10.pdf
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    Bibliographic Info

    Paper provided by Bremer Energie Institut in its series Bremen Energy Working Papers with number 0010.

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    Length: 27 pages
    Date of creation: Sep 2011
    Date of revision:
    Handle: RePEc:bei:00bewp:0010

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    Web page: http://www.bremer-energie-institut.de/

    Related research

    Keywords: network investment; distribution networks; locational pricing; smart contracts;

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    1. Dijk, J. & Willems, Bert, 2011. "The effect of counter-trading on competition in electricity markets," Open Access publications from Tilburg University urn:nbn:nl:ui:12-4561526, Tilburg University.
    2. Brandstätt, Christine & Brunekreeft, Gert & Jahnke, Katy, 2011. "How to deal with negative power price spikes?--Flexible voluntary curtailment agreements for large-scale integration of wind," Energy Policy, Elsevier, vol. 39(6), pages 3732-3740, June.
    3. Brunekreeft, Gert & Neuhoff, Karsten & Newbery, David, 2005. "Electricity transmission: An overview of the current debate," Utilities Policy, Elsevier, vol. 13(2), pages 73-93, June.
    4. Brandstätt, Christine & Brunekreeft, Gert & Friedrichsen, Nele, 2011. "Locational signals to reduce network investments in smart distribution grids: What works and what not?," Utilities Policy, Elsevier, vol. 19(4), pages 244-254.
    5. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-42, September.
    6. Robert D. Willig, 1978. "Pareto-Superior Nonlinear Outlay Schedules," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 56-69, Spring.
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