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A Dynamic Incentive Mechanism for Transmission Expansion in Electricity Networks – Theory, Modeling and Application

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  • Rosellon, Juan
  • Weigt, Hannes

Abstract

This paper examines the Hogan-Rosellón-Vogelsang (2007) (HRV) incentive mechanism for transmission expansion, and tests it for different network topologies. This new mechanism is based upon redefining transmission output in terms of point-to-point transactions or financial transmission rights (FTRs) and applies Vogelsang’s (2001) incentive-regulation logic that proposes rebalancing the variable and fixed parts of a two-part tariff to promote efficient, long-term expansion. We analyze three main topics: first, the behavior of cost functions for distinct network topologies; second, the HRV regulatory approach (incorporated into an MPEC Problem and tested for a three-node network), and third an application to a simplified network. The results suggest that the mechanism is generally suited as an incentive tool for network extensions.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 22843.

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Date of creation: 2008
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Handle: RePEc:pra:mprapa:22843

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Keywords: Electricity transmission expansion; incentive regulation; merchant investment; congestion management; Europe;

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References

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  1. Vogelsang, Ingo, 2001. "Price Regulation for Independent Transmission Companies," Journal of Regulatory Economics, Springer, Springer, vol. 20(2), pages 141-65, September.
  2. Neuhoff, Karsten & Barquin, Julian & Boots, Maroeska G. & Ehrenmann, Andreas & Hobbs, Benjamin F. & Rijkers, Fieke A.M. & Vazquez, Miguel, 2005. "Network-constrained Cournot models of liberalized electricity markets: the devil is in the details," Energy Economics, Elsevier, Elsevier, vol. 27(3), pages 495-525, May.
  3. Thomas-Olivier Leautier, 2000. "Regulation of an Electric Power Transmission Company," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 4), pages 61-92.
  4. Tarjei Kristiansen & Juan Rosellón, 2006. "A Merchant Mechanism for Electricity Transmission Expansion," Journal of Regulatory Economics, Springer, Springer, vol. 29(2), pages 167-193, 03.
  5. Bushnell, James B. & Stoft, Steven E., 1997. "Improving private incentives for electric grid investment," Resource and Energy Economics, Elsevier, Elsevier, vol. 19(1-2), pages 85-108, March.
  6. repec:reg:wpaper:207 is not listed on IDEAS
  7. Ramirez, Jose Carlos & Rosellon, Juan, 2002. "Pricing natural gas distribution in Mexico," Energy Economics, Elsevier, Elsevier, vol. 24(3), pages 231-248, May.
  8. Laffont, Jean-Jacques & Tirole, Jean, 1996. "Creating Competition through Interconnection: Theory and Practice," Journal of Regulatory Economics, Springer, Springer, vol. 10(3), pages 227-56, November.
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Citations

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Cited by:
  1. Juan Rosellón & Zdeñka Myslíková & Eric Zenón, 2009. "Incentives for Transmission Investment in the PJM Electricity Market: FTRs or Regulation (or both?)," Working papers, CIDE, División de Economía DTE 463, CIDE, División de Economía.
  2. Herrera, Luis Ángel & Rosellón, Juan, 2014. "On distributive effects of optimal regulation for power grid expansion," Energy Policy, Elsevier, Elsevier, vol. 69(C), pages 189-204.
  3. Hagspiel, Simeon & Jägemann, Cosima & Lindenberger, Dietmar & Brown, Tom & Cherevatskiy, Stanislav & Tröster, Eckehard, 2013. "Cost-Optimal Power System Extension under Flow-Based Market Coupling," EWI Working Papers, Energiewirtschaftliches Institut an der Universitaet zu Koeln 2013-9, Energiewirtschaftliches Institut an der Universitaet zu Koeln.
  4. Jonas Egerer & Juan Rosellón & Wolf-Peter Schill, 2013. "Power System Transformation towards Renewables: An Evaluation of Regulatory Approaches for Network Expansion," Discussion Papers of DIW Berlin 1312, DIW Berlin, German Institute for Economic Research.
  5. Daniel Huppmann & Jonas Egerer, 2014. "National-Strategic Investment in European Power Transmission Capacity," Discussion Papers of DIW Berlin 1379, DIW Berlin, German Institute for Economic Research.
  6. Zenon, Eric & Rosellon, Juan, 2010. "Expansión de las Redes de Transmisión Eléctrica en Norteamérica: Teoría y Aplicaciones
    [The Expansion of Electricity Networks in North America: Theory and Applications]
    ," MPRA Paper 26470, University Library of Munich, Germany.
  7. Jonas Egerer & Clemens Gerbaulet & Casimir Lorenz, 2013. "European Electricity Grid Infrastructure Expansion in a 2050 Context," Discussion Papers of DIW Berlin 1299, DIW Berlin, German Institute for Economic Research.
  8. Juan Rosellón & Wolf-Peter Schill & Jonas Egerer, 2011. "Regulated Expansion of Electricity Transmission Networks: The Effects of Fluctuating Demand and Wind Generation," Working papers, CIDE, División de Economía DTE 523, CIDE, División de Economía.
  9. Rosellon, Juan & Tregear, Juan & Zenon, Eric, 2010. "El modelo HRV para expansión óptima de redes de transmisión: una aplicación a la red eléctrica de Ontario
    [The HRV Model for the Optimal Expansion of Transmission Networks: an Application to t
    ," MPRA Paper 26471, University Library of Munich, Germany.
  10. Anne Neumann & Juan Rosellón & Hannes Weigt, 2011. "Removing Cross-Border Capacity Bottlenecks in the European Natural Gas Market: A Proposed Merchant-Regulatory Mechanism," Discussion Papers of DIW Berlin 1145, DIW Berlin, German Institute for Economic Research.
  11. Ruiz, Erix & Rosellón, Juan, 2012. "Transmission investment in the Peruvian electricity market: Theory and applications," Energy Policy, Elsevier, Elsevier, vol. 47(C), pages 238-245.
  12. Luis M. Abadie & José M. Chamorro, 2011. "Valuing Expansions of the Electricity Transmission Network under Uncertainty: The Binodal Case," Energies, MDPI, Open Access Journal, vol. 4(10), pages 1696-1727, October.

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