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The efficiency of short run and long run locational signals to coordinate generation location with lumpy transmission investments

Author

Listed:
  • Vincent Rious

    (SUPELEC-Campus Gif - SUPELEC)

  • Yannick Perez

    () (ADIS - Analyse des Dynamiques Industrielles et Sociales - UP11 - Université Paris-Sud - Paris 11 - Département d'Economie)

  • Philippe Dessante

    () (SUPELEC-Campus Gif - SUPELEC)

Abstract

This paper addresses the problem of interaction between short run and long run locational signals and the coordination between generation investments and lumpy transmission investments. The short run locational signals we evaluate are sent by nodal pricing and the long run ones are sent by the average participation use-of-the-network tariff. Their joint implementation is also deemed. Numerical simulations are performed on a two-node network evolving during twenty years with increasing demand. The efficiency of these locational signals to coordinate the location of generation with lumpy transmission investments is measured. An independent Transmission System Operator invests to minimize the total cost of the network, that is to say the sum of the cost of congestion with the cost of transmission investments. And a unique generator behaving competitively chooses the location of her investments depending on two elements: the locational difference in generation investment costs and the costs of the network she may pay with short run nodal prices and with the long run average participation tariff. The network tariff varies with the transmission investments. And the transmission capacity greatly influences nodal prices. We find out that neither short run nodal prices nor long run average participation tariffs can thoroughly coordinate efficiently generation and transmission investments because of the lumpiness of transmission line capacities.

Suggested Citation

  • Vincent Rious & Yannick Perez & Philippe Dessante, 2008. "The efficiency of short run and long run locational signals to coordinate generation location with lumpy transmission investments," Post-Print hal-00339505, HAL.
  • Handle: RePEc:hal:journl:hal-00339505
    Note: View the original document on HAL open archive server: https://hal-supelec.archives-ouvertes.fr/hal-00339505
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    References listed on IDEAS

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    1. Bushnell, James B. & Stoft, Steven E., 1997. "Improving private incentives for electric grid investment," Resource and Energy Economics, Elsevier, vol. 19(1-2), pages 85-108, March.
    2. Paul L. Joskow, 2014. "Incentive Regulation in Theory and Practice: Electricity Distribution and Transmission Networks," NBER Chapters,in: Economic Regulation and Its Reform: What Have We Learned?, pages 291-344 National Bureau of Economic Research, Inc.
    3. Richard Green, 2007. "Nodal pricing of electricity: how much does it cost to get it wrong?," Journal of Regulatory Economics, Springer, vol. 31(2), pages 125-149, April.
    4. Green, Richard, 1997. "Transmission pricing in England and Wales," Utilities Policy, Elsevier, vol. 6(3), pages 185-193, September.
    5. Pollitt, Michael, 2008. "The arguments for and against ownership unbundling of energy transmission networks," Energy Policy, Elsevier, vol. 36(2), pages 704-713, February.
    6. Chao, Hung-Po & Peck, Stephen, 1996. "A Market Mechanism for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 10(1), pages 25-59, July.
    7. Bushnell, James B & Stoft, Steven E, 1996. "Electric Grid Investment under a Contract Network Regime," Journal of Regulatory Economics, Springer, vol. 10(1), pages 61-79, July.
    8. Brunekreeft, Gert, 2004. "Market-based investment in electricity transmission networks: controllable flow," Utilities Policy, Elsevier, vol. 12(4), pages 269-281, December.
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    Cited by:

    1. Pollitt, Michael G., 2012. "Lessons from the history of independent system operators in the energy sector," Energy Policy, Elsevier, vol. 47(C), pages 32-48.

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    Keywords

    Bridging Energy Supply and Demand: Logistics; Competition Environment;

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