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Merchant and Regulated Transmission: Theory, Evidence and Policy

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  • Littlechild, S.

Abstract

Economists acknowledge the problems of regulated transmission but take different views about the likely efficiency of merchant transmission. This paper examines the evidence on alleged market failure and regulatory failure as experienced in practice in Australia and Argentina. In these examples, merchant transmission (broadly defined to include private initiatives) has generally not exhibited the standard examples of market failure but regulated transmission generally has exhibited the standard examples of regulatory failure. Imperfect information – more specifically, in the form of lack of coordination – has often been a challenge whatever the approach. Policy should therefore seek to improve the regulatory framework and to remove barriers to merchant transmission and private initiatives. An important role for regulation is to facilitate coordination between potential providers and users of transmission lines.

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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1160.

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Date of creation: 12 Oct 2011
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Handle: RePEc:cam:camdae:1160

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  23. Brunekreeft, G. & Neuhoff, K. & Newbery, D., 2004. "Electricity transmission: an overview of the current debate," Cambridge Working Papers in Economics 0463, Faculty of Economics, University of Cambridge.
  24. Littlechild, S., 2004. "Regulated and merchant interconnectors in Australia: SNI and Murraylink revisited," Cambridge Working Papers in Economics 0410, Faculty of Economics, University of Cambridge.
  25. Mountain, Bruce & Littlechild, Stephen, 2010. "Comparing electricity distribution network revenues and costs in New South Wales, Great Britain and Victoria," Energy Policy, Elsevier, vol. 38(10), pages 5770-5782, October.
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