 Valuation anomalies for interconnector transmission rightsCeline McInerney and Derek Bunn Energy Policy, 2013, vol. 55, issue C, 565-578 Abstract: Whilst the acquisition of physical transmission interconnector rights between two or more electricity markets can be structured as spread options on the spot prices of electricity between connected markets, empirical evidence suggests that actual prices may be quite different. This raises issues for the valuation of transmission rights, particularly in the European context of market harmonisation, and the use of transmission rights with increasing levels of wind penetration. We examine the price differentials between the Irish and British electricity markets, where explicit transmission capacity auctions have been persistently undersubscribed and transmission rights acquired but not fully utilised. We find significant empirical indications that auction prices for transmission rights are undervalued against both arbitrage and spread option valuations. We also find significant power flows against the efficient price spread direction. A survey of a group of experts with an interest in trading power between Ireland and Britain inform a number of possible explanations for the apparent inefficiencies. These include ex-post pricing in the Irish market, intermittent wind and strategic behaviour by dominant firms. Keywords: Transmission rights; Interconnector; Valuation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:55:y:2013:i:c:p:565-578 DOI: 10.1016/j.enpol.2012.12.050 Access Statistics for this article Energy Policy is currently edited by N. France More articles in Energy Policy from Elsevier |
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