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The Impact of Transmission Pricing in Network Industries

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  • Ruderer, D.

Abstract

The allocation of scarce transmission resources has a considerable impact on investment incentives in network industries. We study the long term effects of two common network management regimes on investment in production and transmission facilities. In one case transmission constraints are directly taken into account through locationally differentiated market prices (simultaneous market clearing). In the other case, a uniform market price is implemented and transmission constraints are resolved in a subsequent congestion market (sequential market clearing). While simultaneous market clearing produces the efficient outcome, sequential market clearing leads to overinvestment in generation and transmission capacity, as we show. These findings contribute to the debate on electricity transmission pricing.

Suggested Citation

  • Ruderer, D., 2012. "The Impact of Transmission Pricing in Network Industries," Cambridge Working Papers in Economics 1230, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1230
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    Cited by:

    1. M. Sarfati & M.R. Hesamzadeh & P. Holmberg, 2018. "Increase-Decrease Game under Imperfect Competition in Two-stage Zonal Power Markets – Part I: Concept Analysis," Working Papers EPRG 1837, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    2. Sarfati, Mahir & Hesamzadeh, Mohammad Reza & Holmberg, Pär, 2018. "Increase-Decrease Game under Imperfect Competition in Two-stage Zonal Power Markets –​ Part I: Concept Analysis," Working Paper Series 1253, Research Institute of Industrial Economics.
    3. Léautier, Thomas-Olivier, 2014. "Transmission constraints and strategic underinvestment in electric power generation," IDEI Working Papers 816, Institut d'Économie Industrielle (IDEI), Toulouse.
    4. Léautier, Thomas-Olivier, 2013. "Fred Schweppe meets Marcel Boiteux and Antoine-Augustin Cournot: transmission constraints and strategic underinvestment in electric power generation," TSE Working Papers 13-432, Toulouse School of Economics (TSE).
    5. Alexander Zerrahn & Daniel Huppmann, 2014. "Network Expansion to Mitigate Market Power: How Increased Integration Fosters Welfare," Discussion Papers of DIW Berlin 1380, DIW Berlin, German Institute for Economic Research.
    6. Hesamzadeh, Mohammad Reza & Holmberg, Pär & Sarfati, Mahir, 2018. "Simulation and Evaluation of Zonal Electricity Market Designs," Working Paper Series 1211, Research Institute of Industrial Economics.
    7. Pär Holmberg and Ewa Lazarczyk, 2015. "Comparison of congestion management techniques: Nodal, zonal and discriminatory pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    8. Grimm, Veronika & Martin, Alexander & Schmidt, Martin & Weibelzahl, Martin & Zöttl, Gregor, 2016. "Transmission and generation investment in electricity markets: The effects of market splitting and network fee regimes," European Journal of Operational Research, Elsevier, vol. 254(2), pages 493-509.
    9. Alexander Zerrahn & Daniel Huppmann, 2017. "Network Expansion to Mitigate Market Power," Networks and Spatial Economics, Springer, vol. 17(2), pages 611-644, June.

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    More about this item

    Keywords

    Transmission Investment; Generation Investment; Market Design; Locational Marginal Pricing; Redispatch; Fluctuating Demand; Scarcity Rents;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition

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