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Power System Transformation toward Renewables: An Evaluation of Regulatory Approaches for Network Expansion

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  • Egerer, Jonas
  • Rosellón, Juan
  • Schill, Wolf-Peter

Abstract

We analyze various regulatory regimes for electricity transmission investment in the context of a power system transformation toward renewable energy. Distinctive developments of the generation mix are studied, assuming that a shift toward renewables may have temporary or permanent impacts on network congestion. We specifically analyze the relative performance of a combined merchant-regulatory price-cap mechanism, a cost-based rule, and a non-regulated approach in dynamic generation settings. We find that incentive regulation may perform better than cost-based regulation but only when appropriate weights are used. While quasi-ideal weights generally restore the beneficial properties that incentive regulatory mechanisms are well-known for, pure Laspeyres weights may either lead to over-investment or delayed investments as compared to the welfare-optimum benchmark. Laspeyres-Paasche weights, in turn, seem appropriate under permanently or temporarily increased network congestion. Thus, our analysis provides motivation for further research in order to characterize optimal regulation for transmission expansion in the context of renewable integration.

Suggested Citation

  • Egerer, Jonas & Rosellón, Juan & Schill, Wolf-Peter, 2015. "Power System Transformation toward Renewables: An Evaluation of Regulatory Approaches for Network Expansion," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics, pages 105-128.
  • Handle: RePEc:zbw:espost:121248
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. repec:aen:journl:ej38-si1-rosellon is not listed on IDEAS
    2. Anne Neumann & Juan Rosellón & Hannes Weigt, 2015. "Removing Cross-Border Capacity Bottlenecks in the European Natural Gas Market—A Proposed Merchant-Regulatory Mechanism," Networks and Spatial Economics, Springer, vol. 15(1), pages 149-181, March.
    3. Zenón, Eric & Rosellón, Juan, 2017. "Optimal transmission planning under the Mexican new electricity market," Energy Policy, Elsevier, vol. 104(C), pages 349-360.
    4. repec:aen:journl:ej37-si3-egerer is not listed on IDEAS
    5. Claudia Kemfert & Friedrich Kunz & Juan Rosellón, 2015. "A Welfare Analysis of the Electricity Transmission Regulatory Regime in Germany," Discussion Papers of DIW Berlin 1492, DIW Berlin, German Institute for Economic Research.
    6. Schill, Wolf-Peter & Egerer, Jonas & Rosellón, Juan, 2015. "Testing Regulatory Regimes for Power Transmission Expansion with Fluctuating Demand and Wind Generation," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics, pages 1-28.
    7. repec:eee:energy:v:134:y:2017:i:c:p:984-990 is not listed on IDEAS

    More about this item

    Keywords

    Electricity transmission; Incentive regulation; Renewable integration; Laspeyres-Paasche weights; Ideal weights;

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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