Investment Coordination in Network Industries: The Case of Electricity Grid and Electricity

Felix Höffler () and Achim Wambach
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Felix Höffler: Energiewirtschaftliches Institut an der Universitaet zu Koeln

No 2013-12, EWI Working Papers from Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)

Abstract: Liberalization of network industries frequently separates the network from the other parts of the industry. This is important in particular for the electricity industry where private firms invest into generation facilities, while net- work investments usually are controlled by regulators. We discuss two regulatory regimes. First, the regulator can only decide on the network extension. Second, she can additionally use a "capacity market" with payments contingent on private generation investment. For the first case, we find that even absent asymmetric information, a lack of regulatory commitment can cause inefficiently high or inefficiently low investments. For the second case, we develop a standard handicap auction which implements the first best under asymmetric information, if there are no shadow costs of public funds. With shadow costs, no simple mechanism can implement the second best outcome.

Keywords: Regulation; commitment; capacity markets; transmission system investment (search for similar items in EconPapers)
JEL-codes: D44 D47 K23 L51 L94 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2013-06-24
New Economics Papers: this item is included in nep-com, nep-cta, nep-cwa, nep-ene, nep-net and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:ewikln:2013_012

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