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National Transmission System Operators in an International Electricity Market

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  • Horn, Henrik
  • TangerÃ¥s, Thomas

Abstract

This paper develops a framework for analyzing the incentives of national transmission system operators (TSOs) to supply cross-border interconnection capacity in an international electricity market. Our results show that equilibrium transmission capacity is downward distorted, even in situations where full capacity utilization is inefficient. We derive a method for quantifying these distortions and propose a market design that uniquely implements efficient dispatch of electricity. In this design, the distribution of trade adjustment payments causes TSOs to internalize the full effect of network congestion. The design would improve, for instance, on the current European market design.

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  • Horn, Henrik & TangerÃ¥s, Thomas, 2021. "National Transmission System Operators in an International Electricity Market," CEPR Discussion Papers 16289, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16289
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    Cited by:

    1. van Beesten, E. Ruben & Hulshof, Daan, 2023. "Economic incentives for capacity reductions on interconnectors in the day-ahead market," Applied Energy, Elsevier, vol. 341(C).

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    More about this item

    Keywords

    International electricity market; Market design; market power; Network congestion;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q27 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Issues in International Trade
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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