A Dynamic Incentive Mechanism for Transmission Expansion in Electricity Networks: Theory, Modeling, and Application

RosellÃ³n, Juan; Weigt, Hannes

A Dynamic Incentive Mechanism for Transmission Expansion in Electricity Networks: Theory, Modeling, and Application

Juan RosellÃ³n and Hannes Weigt
Authors registered in the RePEc Author Service: Juan Rosellon

The Energy Journal, 2011, vol. 32, issue 1, 119-148

Abstract: We propose a price-cap mechanism for electricity-transmission expansion based on redefining transmission output in terms of financial transmission rights. Our mechanism applies the incentive-regulation logic of rebalancing a two-part tariff. First, we test this mechanism in a three-node network. We show that the mechanism intertemporally promotes an investment pattern that relieves congestion, increases welfare, augments the Transcoâ€™sprofits, and induces convergence of prices to marginal costs. We then apply the mechanism to a grid of northwestern Europe and show a gradual convergence toward a common-price benchmark, an increase in total capacity, and convergence toward the welfare optimum.

Keywords: Electricity transmission expansion; incentive regulation (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:32:y:2011:i:1:p:119-148

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No1-5

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