The Impact of Transmission Pricing in Network Industries
AbstractThe allocation of scarce transmission resources has a considerable impact on investment incentives in network industries. We study the long term effects of two common network management regimes on investment in production and transmission facilities. In one case transmission constraints are directly taken into account through locationally differentiated market prices (simultaneous market clearing). In the other case, a uniform market price is implemented and transmission constraints are resolved in a subsequent congestion market (sequential market clearing). While simultaneous market clearing produces the efficient outcome, sequential market clearing leads to overinvestment in generation and transmission capacity, as we show. These findings contribute to the debate on electricity transmission pricing.
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Bibliographic InfoPaper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1230.
Date of creation: 07 Jun 2012
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Transmission Investment; Generation Investment; Market Design; Locational Marginal Pricing; Redispatch; Fluctuating Demand; Scarcity Rents;
Find related papers by JEL classification:
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- D41 - Microeconomics - - Market Structure and Pricing - - - Perfect Competition
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