Is combination of nodal pricing and average participation tariff the best solution to coordinate the location of power plants with lumpy transmission investments?
This 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.
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Paper provided by European University Institute in its series RSCAS Working Papers with number
2009/14.
Find related papers by JEL classification: 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
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References listed on IDEAS 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,"
Working Papers
0304, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
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