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http://ssrn.com/abstract=1640546
 
 

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Incentives for Transmission Investment in the PJM Electricity Market: FTRs or Regulation (or Both?)


Juan Rosellon


Centro de Investigacion y Docencia Economicas

Zdenka Myslikova


affiliation not provided to SSRN

Eric Zenon


affiliation not provided to SSRN

June 2010

DIW Berlin Discussion Paper No. 1026

Abstract:     
This paper presents an application of a mechanism that provides incentives to promote transmission network expansion in the area of the US electric system known as PJM. The applied mechanism combines the merchant and regulatory approaches to attract investment into transmission grids. It is based on rebalancing a two-part tariff in the framework of a wholesale electricity market with locational pricing. The expansion of the network is carried out through the sale of financial transmission rights for the congested lines. The mechanism is tested for 14-node and 17-node geographical coverage areas of PJM. Under Laspeyres weights, it is shown that prices converge to the marginal cost of generation, the congestion rent decreases, and the total social welfare increases. The mechanism is shown to adjust prices effectively given either non-peak or peak demand.

Keywords: Electricity transmission expansion, incentive regulation, PJM

JEL Classification: L51, L91, L94, Q40

working papers series


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Date posted: July 17, 2010  

Suggested Citation

Rosellon, Juan and Myslikova, Zdenka and Zenon, Eric, Incentives for Transmission Investment in the PJM Electricity Market: FTRs or Regulation (or Both?) (June 2010). DIW Berlin Discussion Paper No. 1026. Available at SSRN: http://ssrn.com/abstract=1640546 or http://dx.doi.org/10.2139/ssrn.1640546

Contact Information

Juan Rosellon (Contact Author)
Centro de Investigacion y Docencia Economicas ( email )
Carretera Mexico Toluca 3655
01210 Mexico, D.F.
Mexico
Zdenka Myslikova
affiliation not provided to SSRN ( email )
Eric Zenon
affiliation not provided to SSRN ( email )
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