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Patterns of Transmission Investment

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  • Paul L. Joskow

Abstract

This paper examines a number of issues associated with alternative analytical approaches for evaluating investments in electricity transmission infrastructure and alternative institutional arrangements to govern network operation, maintenance and investment. The economic and physical attributes of different types of transmission investments are identified and discussed. Alternative organizational and regulatory structures and their attributes are presented. The relationships between transmission investments driven by opportunities to reduce congestion and loss costs and transmission investment driven by traditional engineering reliability criteria are discussed. Reliability rules play a much more important role in transmission investment decisions today than do economic investment criteria as depicted in standard economic models of transmission networks. These models fail to capture key aspects of transmission operating and investment behavior that are heavily influenced by uncertainty, contingency criteria and associated engineering reliability rules. I illustrate how the wholesale market and transmission investment frameworks have addressed these issues in England and Wales (E&W) since 1990 and in the PJM Regional Transmission Organization (RTO) in the U.S. since 2000. I argue that economic and reliability-based criteria for transmission investment are fundamentally interdependent. Ignoring these interdependencies will have adverse effects on the efficiency of investment in transmission infrastructure and undermine the success of electricity market liberalization.

Suggested Citation

  • Paul L. Joskow, 2005. "Patterns of Transmission Investment," Working Papers 0504, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  • Handle: RePEc:mee:wpaper:0504
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    File URL: http://tisiphone.mit.edu/RePEc/mee/wpaper/2005-004.pdf
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    References listed on IDEAS

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    1. Paul L. Joskow, 2006. "Incentive Regulation for Electricity Networks," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 4(2), pages 3-9, 07.
    2. Joskow, Paul L., 2005. "Transmission policy in the United States," Utilities Policy, Elsevier, vol. 13(2), pages 95-115, June.
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    Cited by:

    1. 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.
    2. de Nooij, Michiel, 2011. "Social cost-benefit analysis of electricity interconnector investment: A critical appraisal," Energy Policy, Elsevier, vol. 39(6), pages 3096-3105, June.
    3. Thomas-Olivier Léautier & Véronique Thelen, 2009. "Optimal expansion of the power transmission grid: why not?," Journal of Regulatory Economics, Springer, vol. 36(2), pages 127-153, October.
    4. Vincent Rious & Jean-Michel Glachant & Yannick Perez & Philippe Dessante, 2009. "L'insuffisance des signaux de localisation pour la coordination entre la production et le transport d'électricité dans les systèmes électriques libéralisés," Revue économique, Presses de Sciences-Po, vol. 60(3), pages 819-829.
    5. William Hogan & Juan Rosellón & Ingo Vogelsang, 2010. "Toward a combined merchant-regulatory mechanism for electricity transmission expansion," Journal of Regulatory Economics, Springer, vol. 38(2), pages 113-143, October.
    6. Sultana, U. & Khairuddin, Azhar B. & Aman, M.M. & Mokhtar, A.S. & Zareen, N., 2016. "A review of optimum DG placement based on minimization of power losses and voltage stability enhancement of distribution system," Renewable and Sustainable Energy Reviews, Elsevier, vol. 63(C), pages 363-378.
    7. Salci, Sener, 2017. "An Integrated Appraisal of the Péligre Electricity Transmission Line Rehabilitation Investment," MPRA Paper 78929, University Library of Munich, Germany.
    8. Adrien De Hauteclocque & Vincent Rious, 2008. "Regulatory Uncertainty and Inefficiency for the Development of Merchant Lines in Europe," Post-Print hal-00338296, HAL.
    9. Isamu Matsukawa, 2009. "Regulatory effects on the market penetration and capacity of reliability differentiated service," Journal of Regulatory Economics, Springer, vol. 36(2), pages 199-217, October.
    10. 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.
    11. repec:eee:enepol:v:107:y:2017:i:c:p:96-108 is not listed on IDEAS
    12. Richard O’Neill & Emily Fisher & Benjamin Hobbs & Ross Baldick, 2008. "Towards a complete real-time electricity market design," Journal of Regulatory Economics, Springer, vol. 34(3), pages 220-250, December.
    13. Ibarra-Yunez, Alejandro, 2015. "Energy reform in Mexico: Imperfect unbundling in the electricity sector," Utilities Policy, Elsevier, vol. 35(C), pages 19-27.
    14. Hung-po Chao & Shmuel Oren & Robert Wilson, 2005. "Restructured Electricity Markets: Reevaluation of Vertical Integration and Unbundling," Levine's Bibliography 784828000000000238, UCLA Department of Economics.
    15. repec:eee:enepol:v:113:y:2018:i:c:p:376-385 is not listed on IDEAS
    16. Pringles, Rolando & Olsina, Fernando & Garcés, Francisco, 2015. "Real option valuation of power transmission investments by stochastic simulation," Energy Economics, Elsevier, vol. 47(C), pages 215-226.
    17. Matsukawa, Isamu, 2006. "Regulating a Monopoly Offering Priority Service," MPRA Paper 991, University Library of Munich, Germany.
    18. Claire Bergaentzlé, 2012. "Particularités d'adoption des compteurs intelligents au Royaume-Uni et en Allemagne : entre marchés de comptage libéralisé et règles à mettre en place pour un réel smart grid intégré," Post-Print halshs-00793322, HAL.

    More about this item

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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