A Welfare Analysis of the Electricity Transmission Regulatory Regime in Germany

29 Pages Posted: 4 Aug 2015

See all articles by Claudia Kemfert

Claudia Kemfert

DIW Deutsches Institut für Wirtschaftsforschung

Friedrich Kunz

German Institute for Economic Research (DIW Berlin)

Juan Rosellon

Centro de Investigacion y Docencia Economicas

Date Written: July 1, 2015

Abstract

We analyze the current regulatory regime for electricity transmission in Germany, which combines network planning with both cost-plus and revenue-cap regulations. After reviewing international experiences on transmission investment, we first make a qualitative assessment of the overall German regime. The German TSOs have in general incentives to over-invest and inefficiently inflate costs. We further develop two models to analyze the transmission planning process. In the first model there is no trade-off between transmission expansion and generation dispatch. This is a modeling set-up similar to the one actually used in the German transmission planning (Netzentwicklungsplan). A second model alternatively allows for such a trade-off, and thus represents an optimal way of transmission network planning. Simulations with the two models are carried out and compared so as to illustrate the amount of excessive transmission capacity investment and welfare losses associated with the current regime.

Keywords: Transmission planning, nodal prices, congestion management, electricity, Germany

JEL Classification: L50, L94, Q40

Suggested Citation

Kemfert, Claudia and Kunz, Friedrich and Rosellon, Juan, A Welfare Analysis of the Electricity Transmission Regulatory Regime in Germany (July 1, 2015). DIW Berlin Discussion Paper No. 1492, Available at SSRN: https://ssrn.com/abstract=2639116 or http://dx.doi.org/10.2139/ssrn.2639116

Claudia Kemfert (Contact Author)

DIW Deutsches Institut für Wirtschaftsforschung ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Friedrich Kunz

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Juan Rosellon

Centro de Investigacion y Docencia Economicas ( email )

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

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