Incentives for Transmission Investment in the PJM Electricity Market: FTRs or Regulation (or Both?)
AbstractThis paper presents an application of a mechanism that provides incentives to promote transmission network expansion in the area of the US electric system known as PJM. The applied mechanism combines the merchant and regulatory approaches to attract investment into transmission grids. It is based on rebalancing a two-part tariff in the framework of a wholesale electricity market with locational pricing. The expansion of the network is carried out through the sale of financial transmission rights for the congested lines. The mechanism is tested for 14-node and 17-node geographical coverage areas of PJM. Under Laspeyres weights, it is shown that prices converge to the marginal cost of generation, the congestion rent decreases, and the total social welfare increases. The mechanism is shown to adjust prices effectively given either non-peak or peak demand.
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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1026.
Length: 27 p.
Date of creation: 2010
Date of revision:
Publication status: Published in: Utilities Policy 19 (2011), 1, 3-13
Electricity transmission expansion; incentive regulation; PJM;
Other versions of this item:
- Rosellón, Juan & Myslíková, Zdenka & Zenón, Eric, 2011. "Incentives for transmission investment in the PJM electricity market: FTRs or regulation (or both?)," Utilities Policy, Elsevier, vol. 19(1), pages 3-13, January.
- Juan Rosellón & Zdeñka Myslíková & Eric Zenón, 2009. "Incentives for Transmission Investment in the PJM Electricity Market: FTRs or Regulation (or both?)," Documentos de Trabajo DTE 463, CIDE, Division de Economia.
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
- Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-10 (All new papers)
- NEP-ENE-2010-07-10 (Energy Economics)
- NEP-REG-2010-07-10 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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