Capacity constraints, transmission investments, and incentive schemes

Luigi Sereno and Tilemahos Efthimiadis

Energy Policy, 2018, vol. 119, issue C, 8-27

Abstract: We consider firms facing uncertain demand, and study their problem of investing in an electricity line between two neighbouring countries, under capacity constraints, and incentive schemes. We consider three ownership structures: a state-owned transmission company, a merchant transmission investor, and a regulated firm. The firm's problem is to choose the optimal time and size of the interconnector. The government is concerned with the incentive design. We investigate how price caps, capacity targets and merchant investments affect the critical investment thresholds and characterize the government's optimal incentive. We find that price caps speed-up projects' development, while capacity targets reduce under-investments in capacity markets. Finally, we study the effect of investment decisions on the social welfare value.

Keywords: Capacity constraints; Transmission investments; Incentive schemes; Real options (search for similar items in EconPapers)
Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0301421518302210
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:enepol:v:119:y:2018:i:c:p:8-27

DOI: 10.1016/j.enpol.2018.04.004

Access Statistics for this article

Energy Policy is currently edited by N. France

More articles in Energy Policy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().