Should Merchant Transmission Investment be Subject to a Must-offer Provision?

Gert Brunekreeft and David M Newbery

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: Merchant electricity transmission investment is a practically relevant example of an unregulated investment with monopoly properties. However, while leaving the investment decision to the market, the regulator may decide to prohibit capacity withholding with a must-offer provision. This paper examines the welfare effects of a must-offer provision prior to the capacity choice, given three reasons for capacity withholding: uncertainty, demand growth and pre-emptive investment. A must-offer provision will decrease welfare in the first two cases, and can enhance welfare only in the last case. In the presence of importer market power, a regulatory test might be needed.

Keywords: investment; must-offer; capacity withholding; regulation; electricity (search for similar items in EconPapers)
JEL-codes: L4 L51 L94 (search for similar items in EconPapers)
Pages: 34
Date: 2005-08
New Economics Papers: this item is included in nep-com and nep-ene
Note: EPRG
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Citations: View citations in EconPapers (5)

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http://www.electricitypolicy.org.uk/pubs/wp/eprg0503.pdf (application/pdf)

Related works:
Journal Article: Should merchant transmission investment be subject to a must-offer provision? (2006)
Working Paper: Should Merchant Transmission Investment be subject to a Mustoffer Provision? (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0534

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