Should Merchant Transmission Investment be Subject to a Must-offer Provision?
Gert Brunekreeft and
David M Newbery ()
Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge
Merchant electricity transmission investment is a practically relevant example of an unregulated investment with monopoly properties. However, while leaving the investment decision to the market, the regulator may decide to prohibit capacity withholding with a must-offer provision. This paper examines the welfare effects of a must-offer provision prior to the capacity choice, given three reasons for capacity withholding: uncertainty, demand growth and pre-emptive investment. A must-offer provision will decrease welfare in the first two cases, and can enhance welfare only in the last case. In the presence of importer market power, a regulatory test might be needed.
Keywords: investment; must-offer; capacity withholding; regulation; electricity (search for similar items in EconPapers)
JEL-codes: L51 L94 L4 (search for similar items in EconPapers)
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Journal Article: Should merchant transmission investment be subject to a must-offer provision? (2006)
Working Paper: Should Merchant Transmission Investment be subject to a Mustoffer Provision? (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0534
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