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Merchant and regulated transmission: theory, evidence and policy

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  • Stephen Littlechild

Abstract

Economists acknowledge the problems of regulated transmission but have different views on the likely efficiency of merchant transmission. This paper first examines the evidence on alleged market failure and regulatory failure as experienced in practice in Australia, where there have been both regulated and merchant interconnectors. Merchant transmission has generally not exhibited the standard examples of market failure but regulated transmission generally has exhibited the standard examples of regulatory failure. Imperfect information—more specifically, in the form of lack of coordination—has often been a challenge whatever the approach. Experience in Argentina suggests that transactions costs are not a barrier to negotiation and efficient investment determined by users. Policy should seek to improve the regulatory framework and to remove barriers to private initiatives. An important role for regulation is to facilitate coordination between potential providers and users of transmission lines. Copyright Springer Science+Business Media, LLC 2012

Suggested Citation

  • Stephen Littlechild, 2012. "Merchant and regulated transmission: theory, evidence and policy," Journal of Regulatory Economics, Springer, vol. 42(3), pages 308-335, December.
    • Handle: RePEc:kap:regeco:v:42:y:2012:i:3:p:308-335
    DOI: 10.1007/s11149-012-9189-0
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    Cited by:

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    3. Pineau, P.-O. & Dupuis, D.J. & Cenesizoglu, T., 2015. "Assessing the value of power interconnections under climate and natural gas price risks," Energy, Elsevier, vol. 82(C), pages 128-137.
    4. Chao, Hung-po & Wilson, Robert, 2020. "Coordination of electricity transmission and generation investments," Energy Economics, Elsevier, vol. 86(C).
    5. Vogelsang, Ingo, 2017. "Regulatory inertia versus ICT dynamics: The case of product innovations," Telecommunications Policy, Elsevier, vol. 41(10), pages 978-990.
    6. Gerbaulet, C. & Weber, A., 2018. "When regulators do not agree: Are merchant interconnectors an option? Insights from an analysis of options for network expansion in the Baltic Sea region," Energy Policy, Elsevier, vol. 117(C), pages 228-246.
    7. Poudineh, Rahmatallah & Rubino, Alessandro, 2017. "Business model for cross-border interconnections in the Mediterranean basin," Energy Policy, Elsevier, vol. 107(C), pages 96-108.

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    More about this item

    Keywords

    Merchant transmission; Regulation; Negotiated settlements; Market failure; Regulatory failure; Public contest method; L33; L51; L94;
    All these keywords.

    JEL classification:

    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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