A Dynamic Incentive Mechanism for Transmission Expansion in Electricity Networks: Theory, Modeling, and Application

We propose a price-cap mechanism for electricity-transmission expansion based on redefining transmission output in terms of financial transmission rights. Our mechanism applies the incentive-regulation logic of rebalancing a two-part tariff. First, we test this mechanism in a three-node network. We show that the mechanism intertemporally promotes an investment pattern that relieves congestion, increases welfare, augments the Transco´s profits, and induces convergence of prices to marginal costs. We then apply the mechanism to a grid of northwestern Europe and show a gradual convergence toward a common-price benchmark, an increase in total capacity, and convergence toward the welfare optimum.Electricity transmission expansion, incentive regulation

Modelling revenue generation in a dynamically priced mobile telephony service

Dynamic pricing has been used extensively in specific markets for many years but recent years have seen an interest in the utilization of this approach for the deployment of novel and attractive tariff structures for mobile communication services. This paper describes the development and operation of an agent based model (ABM) for subscriber behavior in a dynamically priced mobile telephony network. The design of the ABM was based on an analysis of real call detail records recorded in a Uganda mobile telephony network in which dynamic pricing was deployed. The ABM includes components which simulate subscriber calling behavior, mobility within the network and social linkages. Using this model, this paper reports on an investigation of a number of alternative strategies for the dynamic pricing algorithm which indicate that the network operator will likely experience revenue losses ranging from a 5 %, when the pricing algorithm is based on offering high value subscriber cohort enhanced random discounts compared to a lower value subscriber cohort, to 30 %, when the priding algorithm results in the discount on offer in a cell being inversely proportional to the contemporary cell load. Additionally, the model appears to suggest that the use of optimization algorithms to control the level of discount offered in cells would likely result in discount simply converging to a “no-discount” scenario. Finally, commentary is offered on additional factors which need to be considered when interpreting the results of this work such as the impact of subscriber churn on the size of the subscriber base and the technical and marketing challenges of deploying the various dynamic pricing algorithms which have been investigated

Applying Behavioural Economics to International Development Policy

behavioural economics, policy

Properties of a Non-Competitive Electricity Market Dominated by Hydroelectric Power

An important conclusion from the literature on hydropower is that if there are no other constraints than the available water reservoirs for a year, and operating costs are ignored, the competitive (and socially optimal) outcome is characterized by the (present value) price being constant through the year. A second important conclusion is that the outcome under monopoly generally will differ from this, provided that the demand functions differ across different days (or other sub-periods) of the year. We show that even if the demand function is the same all days of the year, the monopoly outcome will generally differ from the competitive outcome. The difference is caused by the profit function of a price-setting producer of hydropower being non-concave. This non-concavity can be caused by short-run capacity limits either on exports and imports of electricity, or on the supply of alternative electricity sources.Electricity prices, Hydropower