Regionally differentiated network fees to affect incentives for generation investment

Veronika Grimm, Bastian Rückel, Christian Sölch and Gregor Zöttl

Energy, 2019, vol. 177, issue C, 487-502

Abstract: In this paper we propose an equilibrium model that allows to analyze subsidization schemes to affect locational choices for generation investment in electricity markets. Our framework takes into account generation investment decided by private investors and redispatch as well as network expansion decided by a regulated transmission system operator. In order to take into account the different objectives and decision variables of those agents, our approach uses a bi-level structure. We focus on the case of regionally differentiated network fees which have to be paid by generators (a so called g-component). The resulting investment and production decisions are compared to the outcome of an equilibrium model in the absence of such regionally differentiated investment incentives and to an overall optimal (first-best) benchmark. To illustrate possible economic effects, we calibrate our framework with data from the German electricity market. Our results reveal that while regionally differentiated network fees do have a significant impact on locational choice of generation capacities, we do not find significant effects on either welfare or network expansion.

Keywords: Electricity markets; Network expansion; Generation expansion; Investment incentives; Computational equilibrium models (search for similar items in EconPapers)
JEL-codes: C68 D24 D41 D47 D58 D61 D78 L51 L94 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:177:y:2019:i:c:p:487-502

DOI: 10.1016/j.energy.2019.04.035

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