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Production or Transmission Investments? A Comparative Analysis

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Abstract

A successful transformation to a carbon neutral energy system requires the correct investments in transmission and production capacity. In a zonal pricing electricity market, the one proposed by the European Commission to integrate the European electricity markets, I analyze the effects that investments in transmission and production capacity have on consumer welfare and suppliers’ profits. In the specific setting of this paper, I show that when the competition is perfect, an investment in transmission capacity between zones (inter Transmission System Operator (TSO) investment) and an investment in production capacity generate the same equilibrium outcome allocations. In contrast, when the competition is imperfect, an inter TSO investment and an investment in production capacity generate different equilibrium outcome allocations.

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  • Blázquez De Paz, Mario, 2017. "Production or Transmission Investments? A Comparative Analysis," Working Paper Series 1158, Research Institute of Industrial Economics.
  • Handle: RePEc:hhs:iuiwop:1158
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    More about this item

    Keywords

    Electricity auctions; Wholesale electricity markets; Transmission capacity constraints; Investment transmission capacity; Investment production capacity;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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