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Long-term transmission rights and dynamic efficiency

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  • Petropoulos, Georgios
  • Willems, Bert

Abstract

We compare market designs for access regulation of a bottleneck transmission line, and study their impact on investment decisions by an incumbent firm with an existing dirty technology and entrant with an uncertain future low-carbon technology. Nodal pricing, which allocates network access on a short-term competitive basis, distorts investment decisions, as the incumbent preempts the entrant by investing early. Long-term tradable transmission rights restore investment efficiency: the incumbent's investment timing becomes socially optimal. This is the case for financial and physical transmission rights, but it requires the existence of a secondary market for transmission rights.

Suggested Citation

  • Petropoulos, Georgios & Willems, Bert, 2020. "Long-term transmission rights and dynamic efficiency," Energy Economics, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:eneeco:v:88:y:2020:i:c:s0140988320300530
    DOI: 10.1016/j.eneco.2020.104714
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    References listed on IDEAS

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    Cited by:

    1. Wu, Zhongqun & Zheng, Ruijin, 2022. "Research on the impact of financial transmission rights on transmission expansion: A system dynamics model," Energy, Elsevier, vol. 239(PA).
    2. Piotr F. Borowski, 2020. "Zonal and Nodal Models of Energy Market in European Union," Energies, MDPI, vol. 13(16), pages 1-21, August.

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    Keywords

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    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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