Regionally Differentiated Network Fees to Affect Incentives for Generation Investment

39 Pages Posted: 13 Feb 2018 Last revised: 25 Jan 2019

See all articles by Veronika Grimm

Veronika Grimm

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg - School of Business & Economics

Bastian Rückel

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg - School of Business & Economics

Christian Sölch

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

Gregor Zöttl

Friedrich Alexander Universität Erlangen Nürnberg

Date Written: January 8, 2019

Abstract

In this paper we propose an equilibrium model that allows to analyze subsidization schemes to affect locational choices for generation investment in electricity markets. Our framework takes into account generation investment decided by private investors and redispatch as well as network expansion decided by a regulated transmission system operator. In order to take into account the different objectives and decision variables of those agents, our approach uses a bi-level structure. We focus on the case of regionally differentiated network fees which have to be paid by generators (a so called g-component). The resulting investment and production decisions are compared to the outcome of an equilibrium model in the absence of such regionally differentiated investment incentives and to an overall optimal (first-best) benchmark. To illustrate possible economic effects, we calibrate our framework with data from the German electricity market. Our results reveal that while regionally differentiated network fees do have a significant impact on locational choice of generation capacities, we do not find significant effects on either welfare or network expansion.

Keywords: Electricity Markets, Network Expansion, Generation Expansion, Investment Incentives, Computational Equilibrium Models

JEL Classification: C68, D24, D41, D47, D58, D61, D78, L51, L94

Suggested Citation

Grimm, Veronika and Rückel, Bastian and Sölch, Christian and Zöttl, Gregor, Regionally Differentiated Network Fees to Affect Incentives for Generation Investment (January 8, 2019). Available at SSRN: https://ssrn.com/abstract=3120476 or http://dx.doi.org/10.2139/ssrn.3120476

Veronika Grimm

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg - School of Business & Economics ( email )

Nuremburg
Germany

Bastian Rückel

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg - School of Business & Economics ( email )

Nuremburg
Germany

Christian Sölch (Contact Author)

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg ( email )

Lange Gasse 20
Nuremberg, Bavaria 90403
Germany

Gregor Zöttl

Friedrich Alexander Universität Erlangen Nürnberg ( email )

Nuremburg
Germany

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