Improving Investment Coordination in Electricity Networks Through Smart Contracts

Christine Brandstätt, Gert Brunekreeft and Nele Friedrichsen

No 10, Bremen Energy Working Papers from Bremen Energy Research

Abstract: Smart contracts based on voluntary participation and optionality can be a low transaction cost solution to implement locational signals in distribution networks and thereby avoid network investment. This paper examines the efficiency properties of smart contracts. Based on a three-node example network we show that cases exist in which smart contracts can achieve a pareto-improvement compared to the status-quo even with voluntary participation. With the pareto improvement at least one party is better of under a smart contract without worsening the situation for anyone else. We note that this requirement is very restrictive and leaves significant potential for efficiency improvements by smart contracts untapped. We then discuss the implementation of smart contracts with incentive regulation. There are two main tasks for the regulator: allowing network operators flexibility to offer such contracts and incentivizing network operators to do so.

Keywords: network investment; distribution networks; locational pricing; smart contracts (search for similar items in EconPapers)
JEL-codes: D23 D43 L14 L22 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2011-09
New Economics Papers: this item is included in nep-ene, nep-net and nep-reg
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:bei:00bewp:0010

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