Transmission Investment in the Peruvian Electricity Market: Theory and Applications

Juan Rosellon and Erix Ruiz

No DTE 522, Working Papers from CIDE, División de Economía

Abstract: This research presents an application of the Hogan, Rosellón and Vogelsang (2010) (HRV) mechanism that promotes electricity transmission network expansion in the Peruvian electricity transmission system known as SEIN (Sistema Eléctrico Interconectado Nacional). The HRV mechanism combines the merchant and regulatory approaches to promote investment into transmission grids. This mechanism gives incentives for efficient investment in expansion of the network by the rebalancing over time of the fixed and variable charges of a two-part tariff in the framework of a wholesale electricity market with locational pricing. The expansion of the network is carried out through the sale of Financial Transmission Rights (FTR's) for the congested lines. The mechanism is applied for 103 nodes of the SEIN using detailed characteristics of generators, nodes and transmission lines. Under Laspeyres weights and linear cost of expansion of transmission capacity, it is shown that prices converge to lower levels as a result of increased transmission capacity.

Keywords: Investment; Peru; Electricity Market (search for similar items in EconPapers)
JEL-codes: L94 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2011-11
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Related works:
Journal Article: Transmission investment in the Peruvian electricity market: Theory and applications (2012)
Working Paper: Transmission Investment in the Peruvian Electricity Market: Theory and Applications (2011)
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