Market-based Investment in Electricity Transmission Networks: Controllable Flow

This paper discusses unregulated market-based electricity transmission investment by third parties as opposed to regulated investment by designated transmission system operators. The analysis is set against a European and Australian institutional background and focuses on interconnection of different systems. The paper explores four areas: economies of scale, market power, detrimental investment and risks. The analysis argues for restricting market-based investment to controllable flow (DC or FACTS) only. This is in line with what seems to take place in practice in Europe and Australia, it strikes a balance between pros and cons of market-based investment and draws a sharp line between regulated and unregulated investments.electricity, transmission, merchant, investment

Regulatory Threat in Vertically Related Markets; The Case of German Electricity

This paper applies the concept of regulatory threat to analyse the electricity supply industry in Germany, where in contrast to other European member states, there is no ex-ante regulation of network access charges. Instead, network access relies on industrial self-regulation and ex-post control by the Cartel Office. The paper modifies the concept of regulatory threat to vertically related markets, stressing the balance between the level of the network access charges and (non-price) discrimination against their parties. The conceptual framework appears to explain developments in the German electricity sector accurately and thus provides a useful tool for policy analysis.regulation, discrimination, network industries, electricity

Electricity transmission: an overview of the current debate

Electricity transmission has emerged as critical for successfully liberalising power markets. This paper surveys the issues currently under discussion and provides a framework for the remaining papers in this issue. We conclude that signalling the efficient location of generation investment might require even a competitive LMP system to be complemented with deep connection charges. Although a Europe-wide LMP system is desirable, it appears politically problematic, so an integrated system of market coupling, possibly evolving by voluntary participation, should have high priority. Merchant investors may be able to increase interconnector capacity, although this is not unproblematic and raises new regulatory issues. A key issue that needs further research is how to better incentivize TSOs, especially with respect to cross-border issues.Electricity, Transmission, Regulation, Prices, Merchant Investment

Decentralized Energy Supply and Electricity Market Structures

Small decentralized power generation units (DG) are politically promoted because of their potential to reduce GHG-emissions and the existing dependency on fossil fuels. A long term goal of this promotion should be the creation of a level playing field for DG and conventional power generation. Due to the impact of DG on the electricity grid infrastructure, future regulation should consider the costs and benefits of the integration of decentralized energy generation units. Without an adequate consideration, the overall costs of the electricity generation system will be unnecessarily high. The present paper analyses, based on detailed modelling of decentralized demand and supply as well as of the overall system, the marginal costs or savings resulting from decentralized production. Thereby particular focus is laid on taking adequately into account the stochasticity both of energy demand and energy supply. An efficient grid pricing system should then remunerate long-term grid cost savings to operators of decentralized energy production or/and charge long-term additional grid costs to these operators. With detailed models of decentralized demand and supply as well as the overall system, the marginal costs or savings resulting from decentralized production are determined and their dependency on characteristics of the grid and of the decentralized supply are discussed

How Emission Certificate Allocations Distort Fossil Investments: The German Example

Despite political activities to foster a low-carbon energy transition, Germany currently sees a considerable number of new coal power plants being added to its power mix. There are several possible drivers for this dash for coal, but it is widely accepted that windfall profits gained through free allocation of ETS certificates play an important role. Yet the quantification of allocation-related investment distortions has been limited to back-of-the envelope calculations and stylized models so far. We close this gap with a numerical model integrating both Germany's particular allocation rules and its specific power generation structure. We find that technology specific new entrant provisions have substantially increased incentives to invest in hard coal plants compared to natural gas at the time of the ETS onset. Expected windfall profits compensated more than half the total capital costs of a hard coal plant. Moreover, a shorter period of free allocations would not have turned investors' favours towards the cleaner natural gas technology because of preexisting economic advantages for coal. In contrast, full auctioning of permits or a single best available technology benchmark would have made natural gas the predominant technology of choice