Long-term transmission rights and dynamic efficiency

Georgios Petropoulos and Bert Willems

Energy Economics, 2020, vol. 88, issue C

Abstract: We compare market designs for access regulation of a bottleneck transmission line, and study their impact on investment decisions by an incumbent firm with an existing dirty technology and entrant with an uncertain future low-carbon technology. Nodal pricing, which allocates network access on a short-term competitive basis, distorts investment decisions, as the incumbent preempts the entrant by investing early. Long-term tradable transmission rights restore investment efficiency: the incumbent's investment timing becomes socially optimal. This is the case for financial and physical transmission rights, but it requires the existence of a secondary market for transmission rights.

Keywords: Network access; Congestion management; Renewable energy sources; Power markets (search for similar items in EconPapers)
JEL-codes: C72 D43 L13 L94 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:88:y:2020:i:c:s0140988320300530

DOI: 10.1016/j.eneco.2020.104714

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