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Long-term transmission rights and dynamic efficiency

Petropoulos,Georgios
; 
Willems,Bert
Abstract
We compare market designs for access regulation of a bottleneck transmission line, and study their impact on investment decisions by an incumbent firm with an existing dirty technology and entrant with an uncertain future low-carbon technology. Nodal pricing, which allocates network access on a short-term competitive basis, distorts investment decisions, as the incumbent preempts the entrant by investing early. Long-term tradable transmission rights restore investment efficiency: the incumbent's investment timing becomes socially optimal. This is the case for financial and physical transmission rights, but it requires the existence of a secondary market for transmission rights.
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Date
2020-05
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Tilburg University Research Output Collection
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Keywords
network access, congestion management, renewable energy sources, power markets, L94 - Electric Utilities, L13 - Oligopoly and Other Imperfect Markets, C72 - Noncooperative Games, D43 - Oligopoly and Other Forms of Market Imperfection, SDG 7 - Affordable and Clean Energy
Citation
Petropoulos, G & Willems, B 2020, 'Long-term transmission rights and dynamic efficiency', Energy Economics, vol. 88, 104714. https://doi.org/10.1016/j.eneco.2020.104714
URI
https://hdl.handle.net/20.500.14602/73245
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