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

Rosellon, Juan; Weigt, Hannes

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

No DTE 424, Working Papers from CIDE, División de Economía

Abstract: This paper examines the Hogan-Rosellón-Vogelsang (2007) (HRV) incentive mechanism for transmission expansion, and tests it for different network topologies. This new mechanism is based upon redefining transmission output in terms of point-to-point transactions or financial transmission rights (FTRs) and applies Vogelsang's (2001) incentive-regulation logic that proposes rebalancing the variable and fixed parts of a two-part tariff to promote efficient, long-term expansion. We analyze three main topics: first, the behavior of cost functions for distinct network topologies; second, the HRV regulatory approach (incorporated into an MPEC Problem and tested for a three-node network), and third an application to a simplified network. The results suggest that the mechanism is generally suited as an incentive tool for network extensions.

Keywords: Dynamic Incentive Mechanism; Transmission; Expansion; Electricity Networks Theory (search for similar items in EconPapers)
JEL-codes: L14 M38 Q47 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2008-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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