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Valuing electricity transmission: The case of Alberta

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  • Doucet, Joseph
  • Kleit, Andrew
  • Fikirdanis, Serkan

Abstract

Transmission economics remains a difficult area. Market forces alone are generally felt to be insufficient for signaling investment due to appropriability problems and the challenges of “parallel (loop) flow.” Further, there is no generally recognized method of estimating the value of transmission expansion. Here we extend the approach of Kleit and Reitzes (2008) to the nearly isolated electricity grid of Alberta, essentially eliminating the problems of parallel flow. With this model, we are able to determine the value of electricity flows to and from Alberta, as well as the transactions costs associated with those flows. We are also able to value the impact of transmission expansion in Alberta. We apply this model to a project currently being developed, the Montana–Alberta Tie Line (MATL). Depending on the relevant elasticity of supply, we find that the MATL owners will be able to appropriate between 80% and 96% of the societal value of their new transmission capacity. This high level of appropriability is in contrast to the conclusions of most of the literature in this area, suggesting that market forces may in some instances be effective in providing incentives for optimal transmission investment.

Suggested Citation

  • Doucet, Joseph & Kleit, Andrew & Fikirdanis, Serkan, 2013. "Valuing electricity transmission: The case of Alberta," Energy Economics, Elsevier, vol. 36(C), pages 396-404.
    • Handle: RePEc:eee:eneeco:v:36:y:2013:i:c:p:396-404
    DOI: 10.1016/j.eneco.2012.09.013
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    References listed on IDEAS

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    1. Paul Joskow & Jean Tirole, 2005. "Merchant Transmission Investment," Journal of Industrial Economics, Wiley Blackwell, vol. 53(2), pages 233-264, June.
    2. Andrew N. Kleit, 2001. "Are Regional Oil Markets Growing Closer Together?: An Arbitrage Cost Approach," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-15.
    3. Spiller, Pablo T & Huang, Cliff J, 1986. "On the Extent of the Market: Wholesale Gasoline in the Northeastern United States," Journal of Industrial Economics, Wiley Blackwell, vol. 35(2), pages 131-145, December.
    4. Apostolos Serletis & Mattia Bianchi, 2007. "Informational Efficiency and Interchange Transactions in Alberta's Electricity Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 121-144.
    5. Eto, Joseph H. & Hale, Douglas R. & Lesieutre, Bernard C., 2006. "Toward More Comprehensive Assessments of FERC Electricity Restructuring Policies: A Review of Recent Benefit-Cost Studies of RTOs," The Electricity Journal, Elsevier, vol. 19(10), pages 50-62, December.
    6. Andrew Kleit & James Reitzes, 2008. "The effectiveness of FERC’s transmission policy: is transmission used efficiently and when is it scarce?," Journal of Regulatory Economics, Springer, vol. 34(1), pages 1-26, August.
    7. Deb, Rajat K., 2004. "Transmission Investment Valuations: Weighing Project Benefits," The Electricity Journal, Elsevier, vol. 17(2), pages 55-67, March.
    8. Bresesti, Paola & Calisti, Roberto & Cazzol, Maria Vittoria & Gatti, Antonio & Provenzano, Dario & Vaiani, Andrea & Vailati, Riccardo, 2009. "The benefits of transmission expansions in the competitive electricity markets," Energy, Elsevier, vol. 34(3), pages 274-280.
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    Cited by:

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    More about this item

    Keywords

    Value of transmission; Electricity restructuring;

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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