Merchant Transmission Investment
We examine the performance attributes of a merchant transmission investment framework that relies on 'market driven' investment to increase transmission network capacity needed to support competitive wholesale markets for electricity. Under a stringent set of assumptions, the merchant investment model has a remarkable set of attributes that appears to solve the natural monopoly problem and the associated need for regulating electric transmission companies. We expand the merchant model to incorporate several attributes of wholesale power markets and transmission networks that the merchant model ignores. These include market power in wholesale electricity markets, lumpiness in transmission investment opportunities, stochastic attributes of transmission networks and associated property rights definition issues, strategic behavior by potential merchant transmission investors and issues related to the coordination of transmission system operators and merchant transmission owners. Incorporating these more realistic attributes of transmission networks and the behavior of transmission owners and system operators leads to the conclusion that several potentially significant inefficiencies may result from reliance on the merchant transmission investment framework. Accordingly, it is inappropriate for policymakers to assume that they can avoid dealing with the many challenges associated with stimulating efficient levels of investment in electric transmission networks by adopting the merchant model. Copyright Blackwell Publishing Ltd. 2005.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 53 (2005)
Issue (Month): 2 (06)
|Contact details of provider:|| Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821|
|Order Information:||Web: http://www.blackwellpublishing.com/subs.asp?ref=0022-1821|
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.:
- Brousseau, Eric & Glachant, Jean-Michel, 2002. "The economics of contracts: Theories and applications," Economics Papers from University Paris Dauphine 123456789/12331, Paris Dauphine University.
- Chisari, Omar O. & Dal-Bó, Pedro & Romero, Carlos A., 2000.
"High-Tension Electricity Network Expansions in Argentina: Decision Mechanisms and Willigness-to-Pay Revelation,"
UADE Working Papers
9_2000, Instituto de Economía, Universidad Argentina de la Empresa.
- Chisari, Omar O. & Dal-Bo, Pedro & Romero, Carlos A., 2001. "High-tension electricity network expansions in Argentina: decision mechanisms and willingness-to-pay revelation," Energy Economics, Elsevier, vol. 23(6), pages 697-715, November.
- Thomas-Olivier Leautier, 2000. "Regulation of an Electric Power Transmission Company," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 61-92.
- Green, Richard, 1997. "Transmission pricing in England and Wales," Utilities Policy, Elsevier, vol. 6(3), pages 185-193, September.
- Joshua S. Gans & Stephen P. King, 2000. "Options for Electricity Transmission Regulation in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 33(2), pages 145-160.
- Robert Wilson, 2002. "Architecture of Power Markets," Econometrica, Econometric Society, vol. 70(4), pages 1299-1340, July.
- Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
- Bushnell, James & Stoft, Steven, 1997.
"Improving Private Incentives for Electric Grid Investment,"
Staff General Research Papers
31549, Iowa State University, Department of Economics.
- 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.
- Vogelsang, Ingo, 2001. "Price Regulation for Independent Transmission Companies," Journal of Regulatory Economics, Springer, vol. 20(2), pages 141-65, September.
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
- Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-42, September.
- Bushnell, James, 1999. "Transmission Rights and Market Power," The Electricity Journal, Elsevier, vol. 12(8), pages 77-85, October.
- Oren, Shmuel S. & Spiller, Pablo T. & Varaiya, Pravin & Wu, Felix, 1995. "Nodal prices and transmission rights: A critical appraisal," The Electricity Journal, Elsevier, vol. 8(3), pages 24-35, April.
- Steven Stoft, 1999. "Financial Transmission Rights Meet Cournot: How TCCs Curb Market Power," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 1-23.
- 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.
- Holmstrom, Bengt & Tirole, Jean, 2000. "Liquidity and Risk Management," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 295-319, August.
- Joskow, Paul L & Tirole, Jean, 1999. "Transmission Rights and Market Power on Electric Power Networks I: Financial Rights," CEPR Discussion Papers 2093, C.E.P.R. Discussion Papers.
- Glachant, Jean-Michel & Pignon, Virginie, 2005. "Nordic congestion's arrangement as a model for Europe? Physical constraints vs. economic incentives," Utilities Policy, Elsevier, vol. 13(2), pages 153-162, June.
- Green, Richard, 1999. "The Electricity Contract Market in England and Wales," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 107-24, March.
- Wu, Felix, et al, 1996. "Folk Theorems on Transmission Access: Proofs and Counterexamples," Journal of Regulatory Economics, Springer, vol. 10(1), pages 5-23, July.
When requesting a correction, please mention this item's handle: RePEc:bla:jindec:v:53:y:2005:i:2:p:233-264. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.