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On economic inefficiency of European Inter-TSO compensation mechanism

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  • Sabolić, Dubravko

Abstract

Economic inefficiency of European Inter-Transmission System Operator (ITC) mechanism is demonstrated by means of statistical analysis of a time series of natural quantities (production, consumption, and exchange of energy), as well as by devising a simple model that shows that the current system misallocates relevant costs between transmission system operators (TSOs) involved. Then, the reasons for this apparent inefficiency are discussed. It is concluded that under existing EU policy rules in electricity sector it is not possible to construct a compensation mechanism that would perform a correct reallocation of external costs incurred by energy transits among interconnected networks operated by different TSOs. Then, simple microeconomic models that exhibit a correct compensation of costs, with rules of the game set differently than by today's EU regulatory framework, are presented.

Suggested Citation

  • Sabolić, Dubravko, 2017. "On economic inefficiency of European Inter-TSO compensation mechanism," Energy Policy, Elsevier, vol. 110(C), pages 548-558.
    • Handle: RePEc:eee:enepol:v:110:y:2017:i:c:p:548-558
    DOI: 10.1016/j.enpol.2017.08.047
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    References listed on IDEAS

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    Cited by:

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    2. Churkin, Andrey & Pozo, David & Bialek, Janusz & Korgin, Nikolay & Sauma, Enzo, 2019. "Can cross-border transmission expansion lead to fair and stable cooperation? Northeast Asia case analysis," Energy Economics, Elsevier, vol. 84(C).

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    More about this item

    Keywords

    L52; L94; L98; Inter-Transmission System Operator Compensation (ITC) mechanism; EU electricity sector regulatory framework; Economic inefficiency of ITC mechanism; Correct reallocation;
    All these keywords.

    JEL classification:

    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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