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Transmission expansion in Argentina 2: The Fourth Line revisited

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  • Littlechild, Stephen C.
  • Skerk, Carlos J.

Abstract

In 1992, Argentina introduced the Public Contest method, which required transmission users to propose, vote and pay for major expansions of the electricity transmission system. Economists, consultants, the regulator and others held the application of this method to be unsuccessful, mainly on the ground that "for many years" it delayed investment in a "much needed" Fourth Line to Buenos Aires. The commentators blamed externalities, free-rider problems, the Area of Influence method used to define voting rights, and transactions costs. This paper re-examines the history and economics of the Fourth Line. The delay to the Fourth Line was short (a year and a half rather than many years) and enabled a significant reduction in construction costs. Externalities, free-riding, the Area of Influence method and transactions costs were not problematic. The Fourth Line was initially rejected because it was unprofitable to key beneficiaries. Far from being much needed, the Fourth Line was not economic because the congestion it avoided was worth less than the cost of building it. It had become more economic to transport gas to generate electricity near Buenos Aires than to transmit electricity over long distances. The location of subsequent power stations reflected this. Even though the presence of a subsidy meant that the Public Contest method did not prevent the building of the Fourth Line, it nonetheless forced a much-needed reappraisal of traditional transmission investment policy.

Suggested Citation

  • Littlechild, Stephen C. & Skerk, Carlos J., 2008. "Transmission expansion in Argentina 2: The Fourth Line revisited," Energy Economics, Elsevier, vol. 30(4), pages 1385-1419, July.
  • Handle: RePEc:eee:eneeco:v:30:y:2008:i:4:p:1385-1419
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    References listed on IDEAS

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    Cited by:

    1. Littlechild, Stephen C. & Skerk, Carlos J., 2008. "Transmission expansion in Argentina 1: The origins of policy," Energy Economics, Elsevier, vol. 30(4), pages 1367-1384, July.
    2. Stephen Littlechild, 2012. "Merchant and regulated transmission: theory, evidence and policy," Journal of Regulatory Economics, Springer, pages 308-335.
    3. Littlechild, Stephen C. & Skerk, Carlos J., 2008. "Transmission expansion in Argentina 4: A review of performance," Energy Economics, Elsevier, pages 1462-1490.
    4. Littlechild, Stephen C. & Skerk, Carlos J., 2008. "Transmission expansion in Argentina 3: The evolution of policy," Energy Economics, Elsevier, pages 1420-1461.
    5. Littlechild, Stephen C. & Ponzano, Eduardo A., 2008. "Transmission expansion in Argentina 5: The regional electricity forum of Buenos Aires province," Energy Economics, Elsevier, pages 1491-1526.
    6. Littlechild, Stephen C. & Ponzano, Eduardo A., 2008. "Transmission expansion in Argentina 5: The regional electricity forum of Buenos Aires province," Energy Economics, Elsevier, pages 1491-1526.
    7. Pollitt, Michael, 2008. "Electricity reform in Argentina: Lessons for developing countries," Energy Economics, Elsevier, pages 1536-1567.
    8. Strbac, Goran & Pollitt, Michael & Konstantinidis, Christos Vasilakos & Konstantelos, Ioannis & Moreno, Rodrigo & Newbery, David & Green, Richard, 2014. "Electricity transmission arrangements in Great Britain: Time for change?," Energy Policy, Elsevier, vol. 73(C), pages 298-311.
    9. Erdogdu, Erkan, 2013. "Essays on Electricity Market Reforms: A Cross-Country Applied Approach," MPRA Paper 47139, University Library of Munich, Germany.
    10. Littlechild, Stephen C. & Skerk, Carlos J., 2008. "Transmission expansion in Argentina 6: Distribution companies, regulation and the Public Contest method," Energy Economics, Elsevier, pages 1527-1535.

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