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Cost Recovery in Congested Electricity Networks

  • Pepermans, Guido

    ()

    (Hogeschool-Universiteit Brussel (HUB), Belgium)

  • Willems, Bert

    ()

    (CentER & Tilec, Tilburg University, Tilburg, The Netherlands)

Large scale investments in European electricity networks are foreseen in the next decade. Pricing the network at marginal cost will not be sufficient to pay for those investments as the network is a natural monopoly. This paper derives numerically the socially optimal transmission prices for cost recovery, taking into account that electricity networks are often congested, while allowing for market power in generation. The model is illustrated with a Stackelberg game for the Belgian electricity market.

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File URL: https://lirias.hubrussel.be/bitstream/123456789/3769/1/10HRP22.pdf
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Paper provided by Hogeschool-Universiteit Brussel, Faculteit Economie en Management in its series Working Papers with number 2010/22.

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Length: 22 page
Date of creation: Jun 2010
Date of revision:
Handle: RePEc:hub:wpecon:201022
Contact details of provider: Web page: http://research.hubrussel.be

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  1. Willems, Bert & Rumiantseva, I. & Weigt, H., 2007. "Cournot Versus Supply Functions : What does the Data Tell us?," Discussion Paper 2007-63, Tilburg University, Center for Economic Research.
  2. Barnett, A H, 1980. "The Pigouvian Tax Rule under Monopoly," American Economic Review, American Economic Association, vol. 70(5), pages 1037-41, December.
  3. Holmberg, Pär & Newbery, David & Ralph, Daniel, 2009. "Supply Function Equilibria: Step Functions and Continuous Representations," Working Paper Series 788, Research Institute of Industrial Economics.
  4. von der Fehr, Nils-Henrik Morch & Harbord, David, 1993. "Spot Market Competition in the UK Electricity Industry," Economic Journal, Royal Economic Society, vol. 103(418), pages 531-46, May.
  5. Paul Joskow & Jean Tirole, 2003. "Merchant Transmission Investment," NBER Working Papers 9534, National Bureau of Economic Research, Inc.
  6. Neuhoff, Karsten & Barquin, Julian & Boots, Maroeska G. & Ehrenmann, Andreas & Hobbs, Benjamin F. & Rijkers, Fieke A.M. & Vazquez, Miguel, 2005. "Network-constrained Cournot models of liberalized electricity markets: the devil is in the details," Energy Economics, Elsevier, vol. 27(3), pages 495-525, May.
  7. Berenstein, Severin & Bushnell, James & Stoft, Steven, 2000. "The Competitive Effects of Transmission Capacity in a Deregulated Electricity Industry," Staff General Research Papers 13145, Iowa State University, Department of Economics.
  8. Cardell, Judith B. & Hitt, Carrie Cullen & Hogan, William W., 1997. "Market power and strategic interaction in electricity networks," Resource and Energy Economics, Elsevier, vol. 19(1-2), pages 109-137, March.
  9. G. Pepermans & B. Willems, 2006. "Network Unbundling, Ownership Structure and Oligopolies: A Case Study for the Belgian Electricity Market," Competition and Regulation in Network Industries, Intersentia, vol. 7(2), pages 231-263, June.
  10. SMEERS, Yves & WEI, Jing- Yuan, 1997. "Spatially oligopolistic model with opportunity cost pricing for transmission capacity reservations - A variational inequality approach," CORE Discussion Papers 1997017, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Buchanan, James M, 1969. "External Diseconomies, Corrective Taxes, and Market Structure," American Economic Review, American Economic Association, vol. 59(1), pages 174-77, March.
  12. Shmuel S. Oren, 1997. "Economic Inefficiency of Passive Transmission Rights in Congested Electricity Systems with Competitive Generation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 63-83.
  13. Olmos Camacho, Luis & Perez-Arriaga, Ignacio J., 2007. "Comparison of several inter-TSO compensation methods in the context of the internal electricity market of the European Union," Energy Policy, Elsevier, vol. 35(4), pages 2379-2389, April.
  14. Severin Borenstein & James Bushnell & Christopher R. Knittel, 1999. "Market Power in Electricity Markets: Beyond Concentration Measures," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 65-88.
  15. Green, R., 2004. "Electricity Transmission Pricing: How much does it cost to get it wrong?," Cambridge Working Papers in Economics 0466, Faculty of Economics, University of Cambridge.
  16. Frank A. Wolak & Robert H. Patrick, 2001. "The Impact of Market Rules and Market Structure on the Price Determination Process in the England and Wales Electricity Market," NBER Working Papers 8248, National Bureau of Economic Research, Inc.
  17. William W. Hogan, 1997. "A Market Power Model with Strategic Interaction in Electricity Networks," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 107-141.
  18. Gabriel, Steven A. & Leuthold, Florian U., 2010. "Solving discretely-constrained MPEC problems with applications in electric power markets," Energy Economics, Elsevier, vol. 32(1), pages 3-14, January.
  19. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
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