Regulated Expansion of Electricity Transmission Networks: The Effects of Fluctuating Demand and Wind Generation

33 Pages Posted: 27 Mar 2011

See all articles by Wolf-Peter Schill

Wolf-Peter Schill

DIW Berlin - Department of Energy, Transportation, Environment

Juan Rosellon

Centro de Investigacion y Docencia Economicas

Jonas Egerer

German Institute for Economic Research (DIW Berlin) - Department of International Economics

Date Written: March 2011

Abstract

We study the performance of different regulatory approaches for the expansion of electricity transmission networks in the light of realistic demand patterns and fluctuating wind power. In particular, we are interested in the relative performance of a combined merchant-regulatory mechanism compared to a cost-based and a merchant-like approach. In contrast to earlier research, we explicitly include both an hourly time resolution and fluctuating wind power, which allows representing demand in a very realistic way. This substantially increases the real-world applicability of results compared to previous analyses, which were based on simplifying assumptions. We show that a combined merchant-regulatory regulation, which draws on a cap over the two-part tariff of the Transco, leads to welfare outcomes far superior to the modeled alternatives. This result proves to be robust over a range of different cases and sensitivity analyses. We also find that the intertemporal rebalancing of the two-part tariff carried out by the Transco so as to expand the network is such that the fixed tariff part turns out to be relatively large compared to extension costs.

Keywords: Electricity, Regulation, Transmission Expansion, Wind Power

JEL Classification: Q40, L51, D42

Suggested Citation

Schill, Wolf-Peter and Rosellon, Juan and Egerer, Jonas, Regulated Expansion of Electricity Transmission Networks: The Effects of Fluctuating Demand and Wind Generation (March 2011). DIW Berlin Discussion Paper No. 1109, Available at SSRN: https://ssrn.com/abstract=1793163 or http://dx.doi.org/10.2139/ssrn.1793163

Wolf-Peter Schill (Contact Author)

DIW Berlin - Department of Energy, Transportation, Environment ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Juan Rosellon

Centro de Investigacion y Docencia Economicas ( email )

Carretera Mexico Toluca 3655
01210 Mexico, D.F.
Mexico

Jonas Egerer

German Institute for Economic Research (DIW Berlin) - Department of International Economics ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

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