Transmission Augmentation in an Oligopoly Electricity Market - Part II (Numerical Studies)

This paper proposes a Three-Stage Model for transmission augmentation in restructured electricity markets. The mathematical formulation of the model is developed based on the game theory. Transmission Network Service Provider, TNSP, Generating Companies, GenCos, and Market Management Company, MMC, are placed in different stages of the model. These stages are linked to each other using the Leader-followers game and the concept of Nash equilibriums. An increase in transmission capacity can have two benefits for the electricity market; firstly, efficiency benefit in terms of improving the social surplus of the electricity industry, and, secondly, competition benefit which leads to increasing competition among generating companies. The introduced Three-Stage Model can capture both benefits of transmission projects in electricity markets. An effective numerical method is designed for solving the developed Three-Stage Model. A modified IEEE 14 example system is employed to show the effectiveness of the methodology. This paper has been organized in two parts. First part deals with the mathematical formulation of the algorithm and second part deals with the numerical studies. What follows is the second part of the paper

Economic Transmission Augmentation With Explicit Modeling of the Competition Benefit

This paper derives and evaluates a mathematical structure for identifying economically-efficient transmission augmentations. The mathematical structure is based on the concepts of sequential-move and simultaneous-move games in applied mathematics. The Nash equilibrium solution concept has been reformulated as an optimization problem in the proposed structure. The problem of multiple Nash equilibria is managed by introducing the concept of the worst-case Nash equilibrium. Both the economic concepts of the "efficiency benefit" and "competition benefit" of the transmission capacity are explicitly modeled in the proposed structure. A simple three-bus example system and Garver's example system are employed and modified to suit the purpose of analysis. A thorough economic study of these example systems is presented to highlight the concept and operation of the proposed mathematical structure from different perspectives. The results demonstrate the utility of the proposed structure for measuring the total economic efficiency benefit of additional transmission capacity

Industrial organization and the economics of business strategy.

Industrial organization (IO) has an important role to play in inspiring the competition and regulation policies of the government. At the same it can be used to clarify the economics of business strategies. The idea here is not to give a comprehensive review, but to draw attention to some striking tendencies, prospects and problems of the field of IO as a source of inspiration for competitive strategies. A first focus will be on credible market strategies and asymmetric information, with implications for internal organization, vertical foreclosure and markets with switching costs. A second point will look at detection of not so obvious possibilities, as there are lower prices with cooperation, disadvantageous mergers, positive side effects for rivals, and disadvantageous price discrimination. Finally some approaches will be discussed to problems concerning high requirements on rationality and lack of robustness. An example will be discussed of a search for robustness in strategic investment models in oligopoly settings with leaders and followers.Economics; Strategy;

SUSTAINABLE INFRASTRUCTURE MODELING AND POLICY ANALYSES: CONSTRUCTION, ENERGY AND TRANSPORTATION INDUSTRIES

Sustainable infrastructure operation assumes consideration of interrelated elements and problems within interacting industries in which the decisions made for one industry may affect those in interrelated industries. Problems related to global climate change and resource scarcity are main concerns for a society trying to build a sustainable infrastructure. These problems are targeted from many perspectives, including government-enforced policies and regulations that call for energy efficiency and transportation efficiency to build a sustainable infrastructure. There is a growing interest among engineers in accounting for sustainability under the impact of climate change policies that limit the amount of pollutants being released from projects and facilities. While specific problems can be targeted by specialists in each industry or field, an optimal sustainable solution will be very difficult to find if considered separately. Despite that directions for improvement are defined, the methods and techniques for reaching these specified goals are not yet well developed. Decision-makers do not have the necessary models to evaluate the impact of proposed carbon policies supporting sustainable infrastructure development. Yet, it is important to analyze the problem in a systematic fashion to find cost-efficient, technically well-designed and constructed and sustainable solutions. In this dissertation, an interdisciplinary approach is used with the aim of analyzing programs geared at reducing emissions and costs, and determining optimal allocation of resources along with profit maximization by developing and employing optimization, regression and game-theoretic models for the construction, energy and transportation industries. These models can be used by national, state, local and private agencies for assessing carbon-mitigation policies and low-cost carbon policy developments. Concepts from integer programming, multi-objective decision-making, bi-level programming, simulation and regression are employed in the development of models to support informed decision-making and policy analyses in the construction, transportation and energy sectors. The models incorporate industry-specific details covering engineering, economic and environmental aspects of sustainable practices. The application of these models to real-world case studies provides insights that will allow defined specific goals to be achieved in a cost-efficient way. Results of case studies were optimal and most importantly not intuitive

Strategic investment decisions under the nuclear power debate in Belgium [WP]

In view of the current nuclear power debate in Belgium, we analyze how uncertainty about a nuclear phase-out, coupled with the implementation of renewable energy subsidies and nuclear taxes, affects investment capacity and productivity decisions by Belgian electricity suppliers. To achieve this goal, considering the key characteristics of the Belgian market, we build a Stackelberg closed-loop (two-stage) equilibrium model in which investment decisions are made in a first stage under uncertainty regarding a nuclear phase-out, and productivity decisions are subsequently made in a second stage in a c ertainty environment. Our analysis indicates that, regardless of subsidies, an increase in the probability of nuclear license extension results in lower levels of investment - primarily in renewable energy -, lower total production and a higher electricity price. We also show that the implementation of renewable energy subsidies reduces the effect of an increase in probability of nuclear license extension on producer’s decisions regarding expanded capacity and on total profits in the market

The gas chain: influence of its specificities on the liberalisation process. NBB Working Papers. No. 122, 16 November 2007

Like other network industries, the European gas supply industry has been liberalised, along the lines of what has been done in the United Kingdom and the United States, by opening up to competition the upstream and downstream segments of essential transmission infrastructure. The aim of this first working paper is to draw attention to some of the stakes in the liberalisation of the gas market whose functioning cannot disregard the network infrastructure required to bring this fuel to the consumer, a feature it shares with the electricity market. However, gas also has the specific feature of being a primary energy source that must be transported from its point of extraction. Consequently, opening the upstream supply segment of the market to competition is not so obvious in the European context, because, contrary to the examples of the North American and British gas markets, these supply channels are largely in the hands of external suppliers and thus fall outside the scope of EU legislation on the liberalisation and organisation of the internal market in gas. Competition on the downstream gas supply segment must also adapt to the constraints imposed by access to the grid infrastructure, which, in the case of gas in Europe, goes hand in hand with the constraint of dependence on external suppliers. Hence the opening to competition of upstream and downstream markets is not "synchronous", a discrepancy which can weaken the impact of liberalisation. Moreover, the separation of activities necessary for ensuring free competition in some segments of the market is coupled with major changes in the way the gas chain operates, with the appearance of new markets, new price mechanisms and new intermediaries. Starting out from a situation where gas supply was in the hands of vertically-integrated operators, the new regulatory framework that has been set up must, on the one hand, ensure that competitive forces can be given free rein, and, on the other hand, that free and fair competition helps the gas chain to operate coherently, at lower cost and in the interests of consumers, for whom the stakes are high as natural gas is an important input for many industrial manufacturing processes, even a "commodity" almost of basic necessity

The gas chain : influence of its specificities on the liberalisation process

Like other network industries, the European gas supply industry has been liberalised, along the lines of what has been done in the United Kingdom and the United States, by opening up to competition the upstream and downstream segments of essential transmission infrastructure. The aim of this first working paper is to draw attention to some of the stakes in the liberalisation of the gas market whose functioning cannot disregard the network infrastructure required to bring this fuel to the consumer, a feature it shares with the electricity market. However, gas also has the specific feature of being a primary energy source that must be transported from its point of extraction. Consequently, opening the upstream supply segment of the market to competition is not so obvious in the European context, because, contrary to the examples of the North American and British gas markets, these supply channels are largely in the hands of external suppliers and thus fall outside the scope of EU legislation on the liberalisation and organisation of the internal market in gas. Competition on the downstream gas supply segment must also adapt to the constraints imposed by access to the grid infrastructure, which, in the case of gas in Europe, goes hand in hand with the constraint of dependence on external suppliers. Hence the opening to competition of upstream and downstream markets is not "synchronous", a discrepancy which can weaken the impact of liberalisation. Moreover, the separation of activities necessary for ensuring free competition in some segments of the market is coupled with major changes in the way the gas chain operates, with the appearance of new markets, new price mechanisms and new intermediaries. Starting out from a situation where gas supply was in the hands of vertically-integrated operators, the new regulatory framework that has been set up must, on the one hand, ensure that competitive forces can be given free rein, and, on the other hand, that free and fair competition helps the gas chain to operate coherently, at lower cost and in the interests of consumers, for whom the stakes are high as natural gas is an important input for many industrial manufacturing processes, even a "commodity" almost of basic necessity.network industries, gas industry, gas utility, liberalisation, regulation, deregulation, market structure, European gas supply, oligopoly, OPEG

Transmission and wind investment in a deregulated electricity industry

Adoption of dispersed renewable energy technologies requires transmission network expansion. Besides the transmission system operator (TSO), restructuring of electricity industries has introduced a merchant investor (MI), who earns congestion rents from constructing new lines. We compare these two market designs via a stochastic bi-level programming model that has either the MI or the TSO making transmission investment decisions at the upper level and power producers determining generation investment and operation at the lower level while facing wind power variability. We find that social welfare is always higher under the TSO because the MI has incentive to boost congestion rents by restricting capacities of transmission lines. Such strategic behaviour also limits investment in wind power by producers. However, regardless of the market design (MI or TSO), when producers behave a la Cournot, a higher proportion of energy is produced by wind. In effect, withholding of generation capacity by producers prompts more transmission investment since the TSO aims to increase welfare by subsidising wind and the MI creates more flow to maximise profit