Investment Coordination in Network Industries: The Case of Electricity Grid and Electricity
AbstractLiberalization of network industries frequently separates the network from the other parts of the industry. This is important in particular for the electricity industry where private firms invest into generation facilities, while net- work investments usually are controlled by regulators. We discuss two regulatory regimes. First, the regulator can only decide on the network extension. Second, she can additionally use a "capacity market" with payments contingent on private generation investment. For the first case, we find that even absent asymmetric information, a lack of regulatory commitment can cause inefficiently high or inefficiently low investments. For the second case, we develop a standard handicap auction which implements the first best under asymmetric information, if there are no shadow costs of public funds. With shadow costs, no simple mechanism can implement the second best outcome.
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Bibliographic InfoPaper provided by Energiewirtschaftliches Institut an der Universitaet zu Koeln in its series EWI Working Papers with number 2013-12.
Length: 30 pages
Date of creation: 24 Jun 2013
Date of revision:
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Regulation; commitment; capacity markets; transmission system investment;
Find related papers by JEL classification:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D47 - Microeconomics - - Market Structure and Pricing - - - Market Design
- K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-28 (All new papers)
- NEP-COM-2013-07-28 (Industrial Competition)
- NEP-CTA-2013-07-28 (Contract Theory & Applications)
- NEP-CWA-2013-07-28 (Central & Western Asia)
- NEP-ENE-2013-07-28 (Energy Economics)
- NEP-NET-2013-07-28 (Network Economics)
- NEP-REG-2013-07-28 (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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