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Should Merchant Transmission Investment be subject to a Mustoffer Provision?

Author

Listed:
  • Gert Brunekreeft

    (Tilburg University TILEC)

  • David Newbery

    (University of Cambridge Faculty of Economics)

Abstract

Merchant electricity transmission investment is a practically relevant example of an unregulated investment with monopoly properties. However, while leaving the investment decision to the market, the regulator may decide to prohibit capacity withholding with a must-offer provision. This paper examines the welfare effects of a must-offer provision prior to the capacity choice, given three reasons for capacity withholding: uncertainty, demand growth and pre-emptive investment. A must-offer provision will decrease welfare in the first two cases, and can enhance welfare only in the last case. In the presence of importer market power, a regulatory test might be needed.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Gert Brunekreeft & David Newbery, 2005. "Should Merchant Transmission Investment be subject to a Mustoffer Provision?," Working Papers EPRG 0503, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg0503
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    Cited by:

    1. Boffa, Federico & Pingali, Viswanath & Sala, Francesca, 2015. "Strategic investment in merchant transmission: The impact of capacity utilization rules," Energy Policy, Elsevier, vol. 85(C), pages 455-463.
    2. Clemens Gerbaulet & Alexander Weber, 2014. "Is There Still a Case for Merchant Interconnectors?: Insights from an Analysis of Welfare and Distributional Aspects of Options for Network Expansion in the Baltic Sea Region," Discussion Papers of DIW Berlin 1404, DIW Berlin, German Institute for Economic Research.
    3. de Hauteclocque, Adrien & Rious, Vincent, 2011. "Reconsidering the European regulation of merchant transmission investment in light of the third energy package: The role of dominant generators," Energy Policy, Elsevier, vol. 39(11), pages 7068-7077.
    4. Leuthold, Florian & Jeske, Till & Weigt, Hannes & von Hirschhausen, Christian, 2009. "When the Wind Blows Over Europe: A Simulation Analysis and the Impact of Grid Extensions," MPRA Paper 65655, University Library of Munich, Germany.
    5. Gert Brunekreeft & David Newbery, 2006. "Should merchant transmission investment be subject to a must-offer provision?," Journal of Regulatory Economics, Springer, vol. 30(3), pages 233-260, November.
    6. Sébastien Debia, David Benatia, and Pierre-Olivier Pineau, 2018. "Evaluating an Interconnection Project: Do Strategic Interactions Matter?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 6).
    7. Lynch, Muireann Á. & Tol, Richard S.J. & O'Malley, Mark J., 2012. "Optimal interconnection and renewable targets for north-west Europe," Energy Policy, Elsevier, vol. 51(C), pages 605-617.
    8. Borrmann, Jörg & Brunekreeft, Gert, 2020. "The timing of monopoly investment under cost-based and price-based regulation," Utilities Policy, Elsevier, vol. 66(C).
    9. Rabindra Nepal & John Foster, 2016. "Testing for Market Integration in the Australian National Electricity Market," The Energy Journal, , vol. 37(4), pages 215-238, October.
    10. Bastian Henze & Charles Noussair & Bert Willems, 2012. "Regulation of network infrastructure investments: an experimental evaluation," Journal of Regulatory Economics, Springer, vol. 42(1), pages 1-38, August.
    11. Nepal, Rabindra & Jamasb, Tooraj, 2012. "Interconnections and market integration in the Irish Single Electricity Market," Energy Policy, Elsevier, vol. 51(C), pages 425-434.
    12. Brunekreeft, Gert & Neuhoff, Karsten & Newbery, David, 2005. "Electricity transmission: An overview of the current debate," Utilities Policy, Elsevier, vol. 13(2), pages 73-93, June.
    13. Adrien de Hauteclocque & Vincent Rious, 2009. "Reconsidering the Regulation of Merchant Transmission Investment in the Light of the Third Energy Package: The Role of Dominant Generators," RSCAS Working Papers 2009/59, European University Institute.
    14. Juan Rosellón, 2009. "Mechanisms for the Optimal Expansion of Electricity Transmission Networks," Chapters, in: Joanne Evans & Lester C. Hunt (ed.), International Handbook on the Economics of Energy, chapter 24, Edward Elgar Publishing.
    15. Rabindra Nepal & Tooraj Jamasb, 2011. "Market Integration, Efficiency, and Interconnectors: The Irish Single Electricity Market," Working Papers EPRG 1121, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    16. Adrien de Hauteclocque & Vincent Rious, 2008. "Regulatory Uncertainty and Inefficiency for the Development of Merchant Lines in Europe," Post-Print hal-00338296, HAL.
    17. 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.
    18. van Koten, Silvester, 2012. "Merchant interconnector projects by generators in the EU: Profitability and allocation of capacity," Energy Policy, Elsevier, vol. 41(C), pages 748-758.
    19. Newbery, David, 2023. "Wind, water and wires: Evaluating joint wind and interconnector capacity expansions in hydro-rich regions," Energy Economics, Elsevier, vol. 117(C).
    20. Muireann Á. Lynch & Richard Tol & Mark J. O’Malley, 2014. "Minimising costs and variability of electricity generation by means of optimal electricity interconnection utilisation," Working Paper Series 6814, Department of Economics, University of Sussex Business School.
    21. Brunekreeft, G., 2004. "‘Regulatory Issues in Merchant Transmission Investment’," Cambridge Working Papers in Economics 0422, Faculty of Economics, University of Cambridge.
    22. Ojeda, Osvaldo A. & Olsina, Fernando & Garcés, Francisco, 2009. "Simulation of the long-term dynamic of a market-based transmission interconnection," Energy Policy, Elsevier, vol. 37(8), pages 2889-2899, August.
    23. Kristiansen, T. & Rosellón, J., 2010. "Merchant electricity transmission expansion: A European case study," Energy, Elsevier, vol. 35(10), pages 4107-4115.

    More about this item

    Keywords

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    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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