MIncreasing Market Interconnection: an analysis of the Italian Electricity Spot Market

We estimate the bene ts resulting from completely interconnecting the Italian electricity spot market. The�market is currently divided into two geographic zones - North and South - with limited interzonal transmission capacity that often induces congestion, and hence potential inefficiency. By simulating a fully interconnected market for May 2004, we predict that the total spot market expenditure reduces substantially by almost four percent. Our analysis finds evidence that the (partly State owned) major firm in the market does not currently maximize its short-term profit, and would benefit as well from improved interconnection.Transmission constraints,self-regulated monopoly,zonal pricing,congestion

Increasing Market Interconnection: An analysis of the Italian Electricity Spot Market

In this paper we estimate the benefits resulting from interconnecting the Italian electricity spot market. The market is currently divided into two geographic zones – North and South – with limited interzonal transmission capacity that often induces congestion, and hence potential inefficiency. By simulating a fully interconnected market, we predict that the total spot market expenditure would reduce substantially. Moreover, since savings do not increase linearly with the size of new transmission capacity, even a slight increment to transmission capacity is found to bring substantial benefits to end users. Finally, our analysis shows that the (partly State owned) dominant firm in the market is not maximizing short-term profits.Transmission constraints, zonal pricing, congestion, electricity industry

Strategic investment in merchant transmission: the impact of capacity utilization rules

In this paper we look at the relative merits of two capacity utilization regimes in the merchant electricity transmission network: Must offer (Mo) where the entire capacity installed is made available for transmission and Non Must Offer (NMo) where some capacity could be withheld. We look at two specific cases: (i) Demand for transmission varies across time, and (ii) Vertical integration is allowed between investors in transmission network and electricity generators. In the case of time-varying demand under Mo, we find that a monopolist may underinvest in transmission when compared to NMo, although NMo may lead to more capacity withholding. In the case of vertical integration, we find that when the market power is with the generators of the exporting node, without vertical integration no welfare-enhancing merchant investment would occur. Further, if the generators in the importing node have market power, which of the two regimes is welfare enhancing depends on the parameter values. In case vertical integration is better, then Mo is better than NMo. Finally, we also argue that the incentive to collude among various transmission network investors is mitigated with Mo in place

Increasing market interconnection: An analysis of the Italian electricity spot market

We estimate the benefits (in terms of savings to end-users) resulting from an improved interconnectivity in the Italian electricity spot market. The market is currently divided into two geographic zones - North and South - with limited inter-zonal transmission capacity that often induces congestion, and hence potential inefficiency. By simulating a fully interconnected market, we predict that the total spot market expenditure would reduce substantially. Moreover, since savings do not increase linearly with the size of new transmission capacity, even a slight increment to transmission capacity is found to substantially reduce end-users' expenditures. Finally, our analysis shows that the (partly State owned) dominant firm in the market is not maximizing short-term profits.Transmission constraints Zonal pricing Congestion Electricity industry