Providing Efficient Network Access to Green Power Generators: A Long-Term Property Rights Perspective.
CentER Discussion Paper No. 2017-010
28 Pages Posted: 24 Feb 2017 Last revised: 25 Jul 2017
Date Written: February 22, 2017
Coordinating the timing of new production facilities is one of the challenges of liberalized power sectors. It is complicated by the presence of transmission bottlenecks, oligopolistic competition and the unknown prospects of low-carbon technologies. We build a model encompassing a late and early investment stage, an existing dirty (brown) and a future clean (green) technology and a single transmission bottleneck, and compare dynamic efficiency of several market designs. Allocating network access on a short-term competitive basis distorts investment decisions, as brown firms will preempt green competitors by investing early. Dynamic efficiency is restored with long-term transmission rights that can be traded on a secondary market. We show that dynamic efficiency does not require the existence of physical rights for accessing the transmission line, but financial rights on receiving the scarcity revenues generated by the transmission line suffice.
Keywords: network access, congestion management, renewable energy sources, power
JEL Classification: L94, L13, C72, D43
Suggested Citation: Suggested Citation