Merchant interconnector projects by generators in the EU: Effects on profitability and allocation of capacity
When building a cross-border transmission line (a so-called interconnector) as a for-profit (merchant) project, where the regulator has required that capacity allocation be done non-discriminatorily by explicit auction, the identity of the investor can affect the profitability of the interconnector project and, once operational, the resulting allocation of its capacity. Specifically, when the investor is a generator (hereafter the integrated generator) who also can use the interconnector to export its electricity to a distant location, then, once operational, the integrated generator will bid more aggressively in the allocation auctions to increase the auction revenue and thus its profits. As a result, the integrated generator is more likely to win the auction and the capacity is sold for a higher price. This lowers the allocative efficiency of the auction, but it increases the expected ex-ante profitability of the merchant interconnector project. Unaffiliated, independent generators, however, are less likely to win the auction and, in any case, pay a higher price, which dramatically lowers their revenues from exporting electricity over this interconnector.
|Date of creation:||25 Feb 2011|
|Date of revision:|
|Contact details of provider:|| Postal: Convento, Via delle Fontanelle, 19, 50014 San Domenico di Fiesole (FI) Italy|
Web page: http://www.eui.eu/RSCAS/
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.:
- Jeremy Bulow & Ming Huang & Paul Klemperer, 1996.
"Toeholds and Takeovers,"
- Paul Klemperer & Jeremy Bulow, 1998. "Toeholds and Takeovers," Economics Series Working Papers 1998-W04, University of Oxford, Department of Economics.
- Bulow, Jeremy I. & Huang, Ming & Klemperer, Paul, 1996. "Toeholds and Takeovers," CEPR Discussion Papers 1486, C.E.P.R. Discussion Papers.
- Jeremy Bulow & Ming Huang & Paul Klemperer, 1999. "Toeholds and Takeovers," Finance 9903005, EconWPA.
- Klemperer, Paul, 1999.
" Auction Theory: A Guide to the Literature,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 13(3), pages 227-86, July.
- Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Economics Series Working Papers 1999-W12, University of Oxford, Department of Economics.
- Klemperer, Paul, 1999. "Auction Theory: a Guide to the Literature," CEPR Discussion Papers 2163, C.E.P.R. Discussion Papers.
- Klemperer, P., 1999. "Auction Theory: a Guide to the Literature," Economics Papers 1999-w12, Economics Group, Nuffield College, University of Oxford.
- Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Microeconomics 9903002, EconWPA.
- Yarrow, G., 2003. "Capacity auctions in the UK energy sector," Utilities Policy, Elsevier, vol. 11(1), pages 9-20, March.
- Joskow, P. & Tirole, J., 2003.
"Merchant Transmission Investment,"
Cambridge Working Papers in Economics
0324, Faculty of Economics, University of Cambridge.
- Paul Joskow & Jean Tirole, 2003. "Merchant Transmission Investment," NBER Working Papers 9534, National Bureau of Economic Research, Inc.
- Joskow, Paul & Tirole, Jean, 2004. "Merchant Transmission Investment," IDEI Working Papers 263, Institut d'Économie Industrielle (IDEI), Toulouse.
- Paul Joskow & Jean Tirole, 2003. "Merchant Transmission Investment," Working Papers 0304, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- von der Fehr, Nils-Henrik Morch & Harbord, David, 1993.
"Spot Market Competition in the UK Electricity Industry,"
Royal Economic Society, vol. 103(418), pages 531-46, May.
- Von der Fehr, N.H.M. & Harbord, D., 1992. "Spot Market Competition in the UK Electricity Industry," Memorandum 09/1992, Oslo University, Department of Economics.
- Brunekreeft, Gert, 2004. "Market-based investment in electricity transmission networks: controllable flow," Utilities Policy, Elsevier, vol. 12(4), pages 269-281, December.
- Felix Höffler & Sebastian Kranz, 2007. "Legal Unbundling can be a Golden Mean between Vertical Integration and Separation," Bonn Econ Discussion Papers bgse15_2007, University of Bonn, Germany.
- Leautier, Thomas-Olivier, 2001. "Transmission Constraints and Imperfect Markets for Power," Journal of Regulatory Economics, Springer, vol. 19(1), pages 27-54, January.
- Silvester van Koten & Andreas Ortmann, 2007.
"The Unbundling Regime for Electricity Utilities in the EU: A Case of Legislative and Regulatory Capture?,"
CERGE-EI Working Papers
wp328, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
- van Koten, S. & Ortmann, A., 2008. "The unbundling regime for electricity utilities in the EU: A case of legislative and regulatory capture?," Energy Economics, Elsevier, vol. 30(6), pages 3128-3140, November.
- Stern, J. & Turvey, R., 2003. "Auctions of capacity in network industries," Utilities Policy, Elsevier, vol. 11(1), pages 1-8, March.
- Parisio, Lucia & Bosco, Bruno, 2006.
"Electricity prices and cross-border trade: volume and strategy effects,"
473, University Library of Munich, Germany.
- Parisio, Lucia & Bosco, Bruno, 2008. "Electricity prices and cross-border trade: Volume and strategy effects," Energy Economics, Elsevier, vol. 30(4), pages 1760-1775, July.
- Burkart, Mike, 1995. " Initial Shareholdings and Overbidding in Takeover Contests," Journal of Finance, American Finance Association, vol. 50(5), pages 1491-1515, December.
- repec:adr:anecst:y:2008:i:90:p:09 is not listed on IDEAS
- Helm, D., 2003. "Auctions and Energy Networks1," Utilities Policy, Elsevier, vol. 11(1), pages 21-25, March.
- David Ettinger, 2008. "Auctions and shareholdings," Post-Print hal-00701303, HAL.
- Smith, Vernon L & Walker, James M, 1993. "Monetary Rewards and Decision Cost in Experimental Economics," Economic Inquiry, Western Economic Association International, vol. 31(2), pages 245-61, April.
When requesting a correction, please mention this item's handle: RePEc:rsc:rsceui:2011/10. 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: (RSCAS web unit)
If references are entirely missing, you can add them using this form.