Sustainable transmission planning in imperfectly competitive electricity industries: Balancing economic and environmental outcomes

Afzal S. Siddiqui, Makoto Tanaka and Yihsu Chen

European Journal of Operational Research, 2019, vol. 275, issue 1, 208-223

Abstract: We explore the role of a transmission system operator (TSO) that builds a transmission line to accommodate renewable energy in order to lower emissions as required by government policy. In contrast to central planning, a TSO in a deregulated electricity industry can only indirectly influence outcomes through its choice of the transmission line capacity. Via a bi-level model, we show that this results in less transmission capacity and with limited emissions control in a perfectly competitive industry vis-à-vis a benchmark centrally planned system. A carbon charge on industry that fully accounts for the cost of pollution damage leads to a perfect alignment of incentives and maximised social welfare only under perfect competition. By contrast, a carbon charge may actually lower social welfare under a Cournot oligopoly as the resulting reduction in consumption facilitates the further exercise of market power.

Keywords: OR in environment and climate change; Transmission planning; Bi-level modelling; Market power (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:275:y:2019:i:1:p:208-223

DOI: 10.1016/j.ejor.2018.11.032

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