Transmission benefits and cost allocation under ambiguity

Han Shu and Jacob Mays

Energy Economics, 2025, vol. 141, issue C

Abstract: Disputes over cost allocation can present a significant barrier to investment in shared infrastructure. While it may be desirable to allocate cost in a way that corresponds to expected benefits, investments in long-lived projects are made under conditions of substantial uncertainty. In the context of electricity transmission, uncertainty combined with the inherent complexity of power systems analysis prevents the calculation of an estimated distribution of benefits that is agreeable to all participants. To analyze aspects of the cost allocation problem, we construct a model for transmission and generation expansion planning under uncertainty, enabling the identification of transmission investments as well as the calculation of benefits for users of the network. Numerical tests confirm the potential for realized benefits at the participant level to differ significantly from ex ante estimates. Based on the model and numerical tests we discuss several issues, including (1) establishing a valid counterfactual against which to measure benefits, (2) allocating cost to new and incumbent generators vs. solely allocating to loads, (3) calculating benefits at the portfolio vs. the individual project level, (4) identifying losers in a surplus-enhancing transmission expansion, and (5) quantifying the divergence between cost allocation decisions made ex ante and benefits realized ex post.

Keywords: Electricity markets; Transmission planning; Cost allocation; Uncertainty (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:141:y:2025:i:c:s0140988324007631

DOI: 10.1016/j.eneco.2024.108054

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