Long-run Cost Functions for Electricity Transmission
Electricity transmission has become the pivotal industry segment for electricity restructuring. Yet, little is known about the shape of transmission cost functions. Reasons for this can be a lack of consensus about the definition of transmission output and the complexitity of the relationship between optimal grid expansion and output expansion. Knowledge of transmission cost functions could help firms (Transcos) and regulators plan transmission expansion and could help design regulatory incentive mechanisms. We explore transmission cost functions when the transmission output is defined as point-to-point transactions or financial transmission right (FTR) obligations and particularly explore expansion under loop-flows. We test the behavior of FTR-based cost functions for distinct network topologies and find evidence that cost functions defined as FTR outputs are piecewise differentiable and that they contain sections with negative marginal costs. Simulations, however, illustrate that such unusual properties do not stand in the way of applying price-cap incentive mechanisms to real-world transmission expansion.
|Date of creation:||11 Nov 2009|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Bushnell, James & Stoft, Steven, 1997. "Improving Private Incentives for Electric Grid Investment," Staff General Research Papers 31549, Iowa State University, Department of Economics.
- Bresesti, Paola & Calisti, Roberto & Cazzol, Maria Vittoria & Gatti, Antonio & Provenzano, Dario & Vaiani, Andrea & Vailati, Riccardo, 2009. "The benefits of transmission expansions in the competitive electricity markets," Energy, Elsevier, vol. 34(3), pages 274-280.
- Ingo Vogelsang, 2005.
"Electricity Transmission Pricing and Performance-Based Regulation,"
CESifo Working Paper Series
1474, CESifo Group Munich.
- Ingo Vogelsang, 2006. "Electricity Transmission Pricing and Performance-based Regulation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 97-126.
- Paul Joskow & Jean Tirole, 2003.
"Merchant Transmission Investment,"
0304, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- Paul Joskow & Jean Tirole, 2003. "Merchant Transmission Investment," NBER Working Papers 9534, National Bureau of Economic Research, Inc.
- Joskow, P. & Tirole, J., 2003. "Merchant Transmission Investment," Cambridge Working Papers in Economics 0324, Faculty of Economics, University of Cambridge.
- Joskow, Paul & Tirole, Jean, 2004. "Merchant Transmission Investment," IDEI Working Papers 263, Institut d'Économie Industrielle (IDEI), Toulouse.
- Baldick, Ross & Kahn, Edward, 1993. "Network Costs and the Regulation of Wholesale Competition in Electric Power," Journal of Regulatory Economics, Springer, vol. 5(4), pages 367-84, December.
- Wu, Felix, et al, 1996. "Folk Theorems on Transmission Access: Proofs and Counterexamples," Journal of Regulatory Economics, Springer, vol. 10(1), pages 5-23, July.
- Green, Richard, 1997. "Electricity transmission pricing: an international comparison," Utilities Policy, Elsevier, vol. 6(3), pages 177-184, September.
- 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.
- Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-42, September.
- 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.
- Thomas-Olivier Leautier, 2000. "Regulation of an Electric Power Transmission Company," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 61-92.
- Juan Rosellon & Hannes Weigt, 2007. "A Combined Merchant-Regulatory Mechanism for Electricity Transmission Expansion in Europe," Working papers DTE 396, CIDE, División de Economía.
- Vogelsang, Ingo, 2001. "Price Regulation for Independent Transmission Companies," Journal of Regulatory Economics, Springer, vol. 20(2), pages 141-65, September.
- Oren, Shmuel S. & Spiller, Pablo T. & Varaiya, Pravin & Wu, Felix, 1995. "Nodal prices and transmission rights: A critical appraisal," The Electricity Journal, Elsevier, vol. 8(3), pages 24-35, April.
- Makoto Tanaka, 2007. "Extended Price Cap Mechanism for Efficient Transmission Expansion under Nodal Pricing," Networks and Spatial Economics, Springer, vol. 7(3), pages 257-275, September.
- Laffont, Jean-Jacques & Tirole, Jean, 1996. "Creating Competition through Interconnection: Theory and Practice," Journal of Regulatory Economics, Springer, vol. 10(3), pages 227-56, November.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:22842. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.