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The Competitive Effects of Ownership of Financial Transmission Rights in a Deregulated Electricity Industry

Manho Joung, Ross Baldick and You Seok Son

The Energy Journal, 2008, vol. Volume 29, issue Number 2, 165-184

Abstract: In this paper, we investigate how generatorsÕ ownership of financial transmission rights (FTRs) may influence the effects of the transmission lines on competition. In order for concrete analysis, a simple symmetric market model is introduced and FTRs are modeled in two different forms: FTR options and FTR obligations. This paper shows that introducing FTRs in an appropriate manner may reduce the physical capacity needed for the full benefits of competition. Among the competitive effects of ownership of FTRs, we focus on the effects on two possible pure strategy equilibria: the unconstrained Cournot equilibrium and the passive/aggressive equilibrium. We also analyze an extension of the model: asymmetric markets. Finally, a numerical illustration of applying the analysis is presented.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 2008
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