Transmission and generation investment in electricity markets: The effects of market splitting and network fee regimes

Veronika Grimm, Alexander Martin, Martin Schmidt, Martin Weibelzahl and Gregor Zöttl

European Journal of Operational Research, 2016, vol. 254, issue 2, 493-509

Abstract: We propose an equilibrium model that allows to analyze the long-run impact of the electricity market design on transmission line expansion by the regulator and investment in generation capacity by private firms in liberalized electricity markets. The model incorporates investment decisions of the transmission system operator and private firms in expectation of an energy-only market and cost-based redispatch. In different specifications we consider the cases of one vs. multiple price zones (market splitting) and analyze different approaches to recover network cost—in particular lump sum, generation capacity based, and energy based fees. In order to compare the outcomes of our multilevel market model with a first best benchmark, we also solve the corresponding integrated planner problem. Using two test networks we illustrate that energy-only markets can lead to suboptimal locational decisions for generation capacity and thus imply excessive network expansion. Market splitting heals these problems only partially. These results are valid for all considered types of network tariffs, although investment slightly differs across those regimes.

Keywords: Electricity market modeling; Mixed-integer nonlinear optimization; Multilevel programming; Network expansion; Transmission management (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (67)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221716301904
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:254:y:2016:i:2:p:493-509

DOI: 10.1016/j.ejor.2016.03.044

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().