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The Impact of Transmission Pricing in Network Industries

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  • Ruderer, D.

Abstract

The allocation of scarce transmission resources has a considerable impact on investment incentives in network industries. We study the long term effects of two common network management regimes on investment in production and transmission facilities. In one case transmission constraints are directly taken into account through locationally differentiated market prices (simultaneous market clearing). In the other case, a uniform market price is implemented and transmission constraints are resolved in a subsequent congestion market (sequential market clearing). While simultaneous market clearing produces the efficient outcome, sequential market clearing leads to overinvestment in generation and transmission capacity, as we show. These findings contribute to the debate on electricity transmission pricing.

Suggested Citation

  • Ruderer, D., 2012. "The Impact of Transmission Pricing in Network Industries," Cambridge Working Papers in Economics 1230, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1230
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    Cited by:

    1. M. Sarfati & M.R. Hesamzadeh & P. Holmberg, 2018. "Increase-Decrease Game under Imperfect Competition in Two-stage Zonal Power Markets – Part I: Concept Analysis," Working Papers EPRG 1837, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    2. Pär Holmberg and Ewa Lazarczyk, 2015. "Comparison of congestion management techniques: Nodal, zonal and discriminatory pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    3. Sarfati, Mahir & Hesamzadeh, Mohammad Reza & Holmberg, Pär, 2018. "Increase-Decrease Game under Imperfect Competition in Two-stage Zonal Power Markets –​ Part I: Concept Analysis," Working Paper Series 1253, Research Institute of Industrial Economics.
    4. Léautier, Thomas-Olivier, 2014. "Transmission constraints and strategic underinvestment in electric power generation," IDEI Working Papers 816, Institut d'Économie Industrielle (IDEI), Toulouse.
    5. Grimm, Veronika & Martin, Alexander & Schmidt, Martin & Weibelzahl, Martin & Zöttl, Gregor, 2016. "Transmission and generation investment in electricity markets: The effects of market splitting and network fee regimes," European Journal of Operational Research, Elsevier, vol. 254(2), pages 493-509.
    6. Zerrahn, Alexander & Huppmann, Daniel, 2014. "Network Expansion to Mitigate Market Power: How Increased Integration Fosters Welfare," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100459, Verein für Socialpolitik / German Economic Association.
    7. Léautier, Thomas-Olivier, 2013. "Fred Schweppe meets Marcel Boiteux and Antoine-Augustin Cournot: transmission constraints and strategic underinvestment in electric power generation," TSE Working Papers 13-432, Toulouse School of Economics (TSE).
    8. Alexander Zerrahn & Daniel Huppmann, 2017. "Network Expansion to Mitigate Market Power," Networks and Spatial Economics, Springer, vol. 17(2), pages 611-644, June.
    9. Hesamzadeh, M. & Holmberg, P. & Sarfati, M., 2018. "Simulation and Evaluation of Zonal Electricity Market Designs," Cambridge Working Papers in Economics 1829, Faculty of Economics, University of Cambridge.

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    More about this item

    Keywords

    Transmission Investment; Generation Investment; Market Design; Locational Marginal Pricing; Redispatch; Fluctuating Demand; Scarcity Rents;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition

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