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Production or Transmission Investments? A Comparative Analysis

Mario Blázquez De Paz ()
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Mario Blázquez De Paz: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden, http://www.ifn.se/eng/people/research-faculty/mario-bl%E1zquez-de-paz

No 1158, Working Paper Series from Research Institute of Industrial Economics

Abstract: A successful transformation to a carbon neutral energy system requires the correct investments in transmission and production capacity. In a zonal pricing electricity market, the one proposed by the European Commission to integrate the European electricity markets, I analyze the effects that investments in transmission and production capacity have on consumer welfare and suppliers’ profits. In the specific setting of this paper, I show that when the competition is perfect, an investment in transmission capacity between zones (inter Transmission System Operator (TSO) investment) and an investment in production capacity generate the same equilibrium outcome allocations. In contrast, when the competition is imperfect, an inter TSO investment and an investment in production capacity generate different equilibrium outcome allocations.

Keywords: Electricity auctions; Wholesale electricity markets; Transmission capacity constraints; Investment transmission capacity; Investment production capacity (search for similar items in EconPapers)
JEL-codes: D43 D44 L13 L94 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene
Date: 2017-03-22
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