Pricing short-term gas transmission capacity: A theoretical approach to understand the diverse eﬀects of the multiplier system
Eren Çam and
Dominic Lencz ()
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Eren Çam: Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)
Dominic Lencz: Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI), https://www.ewi.uni-koeln.de
No 2020-2, EWI Working Papers from Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)
In the European Union’s (EU) gas transmission system, transporting gas requires the booking of transmission capacities. For this purpose, long-term and short-term capacity products are oﬀered. Short-term capacities are priced by multiplying long-term capacity tariﬀs with factors called multipliers, making them comparably more expensive. As such, the level of multipliers directly aﬀects how capacity is booked and may signiﬁcantly impact infrastructure utilisation and welfare—an issue that has not received attention in the literature so far. Using a theoretical approach, we show that multipliers equal to 1 minimise costs and maximise welfare. In contrast, higher multipliers are associated with decreasing welfare. Yet, policymakers may favour higher multipliers, as we ﬁnd that multipliers greater than 1 but suﬃciently low can maximise consumer surplus by leading to reduced hub prices and lower regional price spreads on average. These ﬁndings are expected to hold for the large majority of the EU countries. Nevertheless, we also identify situations in which capacity demand can become inelastic depending on the proportion of multipliers with respect to the relative cost of transmission versus storage. In such cases, varying multipliers are found to have no eﬀect on infrastructure utilisation, prices and welfare.
Keywords: gas transmission networks; entry-exit tariﬀs; multipliers; NC CAM (search for similar items in EconPapers)
JEL-codes: L51 L95 Q41 (search for similar items in EconPapers)
Pages: 45 pages
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Persistent link: https://EconPapers.repec.org/RePEc:ris:ewikln:2020_002
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