Is combination of nodal pricing and average participation tariff the best solution to coordinate the location of power plants with lumpy transmission investments?
AbstractThis paper evaluates the opportunity and efficiency to introduce a two-part tariff to coordinate the location of power plants with lumpy transmission investments. Nodal pricing sends the short run component of such a two-part tariff and we study the case where the average participation tariff sends the long run one. We argue that this solution is helpful because the average participation tariff tackles lumpiness of transmission capacity while being as cost-reflective as possible. Our proposition is evaluated based on a double optimization model where a TSO minimizes the transmission cost while a generator minimizes its own cost that may take into account network constraints and include the average participation tariff. Numerical simulations are performed on a two-node network evolving during twenty years with increasing demand. The joint implementation of nodal pricing and the average participation tariff stays the best combination to coordinate as efficiently as possible the generation and transmission investments, although the optimal set of generation and transmission investments may not be reached because of transmission lumpiness. The simulations show also that implementing locational network tariffs is prioritary over implementing nodal pricing to coordinate more efficiently the location of generation with lumpy transmission investment. In the considered examples, the average participation tariff allows a more efficient location of generation even when the congestion management scheme being redispatch sends no short run locational signal.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by European University Institute in its series RSCAS Working Papers with number 2009/14.
Date of creation: 25 Feb 2009
Date of revision:
Generation investment; Lumpy transmission investment; Long run coordination; Locational signals; Efficiency evaluation;
Other versions of this item:
- Vincent Rious & Yannick Perez & Philippe Dessante, 2008. "Is combination of nodal pricing and average participation tariff the best solution to coordinate the location of power plants with lumpy transmission investments?," Post-Print hal-00323878, HAL.
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-06-03 (All new papers)
- NEP-CMP-2009-06-03 (Computational Economics)
- NEP-ENE-2009-06-03 (Energy Economics)
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.:
- Paul Joskow & Jean Tirole, 2003.
"Merchant Transmission Investment,"
NBER Working Papers
9534, National Bureau of Economic Research, Inc.
- Joskow, Paul & Tirole, Jean, 2004. "Merchant Transmission Investment," IDEI Working Papers 263, Institut d'Économie Industrielle (IDEI), Toulouse.
- Joskow, P. & Tirole, J., 2003. "Merchant Transmission Investment," Cambridge Working Papers in Economics 0324, Faculty of Economics, University of Cambridge.
- Paul Joskow & Jean Tirole, 2003. "Merchant Transmission Investment," Working Papers 0304, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- Green, Richard, 1997. "Transmission pricing in England and Wales," Utilities Policy, Elsevier, vol. 6(3), pages 185-193, September.
- Chao, Hung-Po & Peck, Stephen, 1996. "A Market Mechanism for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 10(1), pages 25-59, July.
- Bushnell, James B. & Stoft, Steven E., 1997.
"Improving private incentives for electric grid investment,"
Resource and Energy Economics,
Elsevier, vol. 19(1-2), pages 85-108, March.
- Bushnell, James & Stoft, Steven, 1997. "Improving Private Incentives for Electric Grid Investment," Staff General Research Papers 31549, Iowa State University, Department of Economics.
- Paul L. Joskow, 2013.
"Incentive Regulation in Theory and Practice: Electricity Distribution and Transmission Networks,"
in: Economic Regulation and Its Reform: What Have We Learned?, pages 291-344
National Bureau of Economic Research, Inc.
- Joskow, P.L., 2006. "Incentive Regulation in Theory and Practice: Electricity Distribution and Transmission Networks," Cambridge Working Papers in Economics 0607, Faculty of Economics, University of Cambridge.
- Paul L Joskow, 2005. "Incentive Regulation In Theory And Practice - Electricity Distribution And Transmission Networks," Working Papers 0514, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- Green, Richard, 1997. "Electricity transmission pricing: an international comparison," Utilities Policy, Elsevier, vol. 6(3), pages 177-184, September.
- Bushnell, James B & Stoft, Steven E, 1996. "Electric Grid Investment under a Contract Network Regime," Journal of Regulatory Economics, Springer, vol. 10(1), pages 61-79, July.
- Brunekreeft, Gert, 2004. "Market-based investment in electricity transmission networks: controllable flow," Utilities Policy, Elsevier, vol. 12(4), pages 269-281, December.
- El-Agraa,Ali (ed.), 2007. "The European Union," Cambridge Books, Cambridge University Press, number 9780521874434.
- Richard Green, 2007. "Nodal pricing of electricity: how much does it cost to get it wrong?," Journal of Regulatory Economics, Springer, vol. 31(2), pages 125-149, April.
- Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-42, September.
- repec:reg:wpaper:255 is not listed on IDEAS
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RSCAS web unit).
If references are entirely missing, you can add them using this form.