Transport Pricing in the Electricity Industry

Abstract

Efficiency in the management of electricity transmission networks is essential for the success of the liberalized energy markets. The paper is dedicated to the short-run management problems of these natural monopolies. It analyses how to organize and price access to and use of the transport network. After presenting the technical and institutional features of the electricity industry, the paper develops the normative approach of first-best and second-best pricing by means of nodal prices. Then the exercise of market power at some nodes and its consequences for the transport system operator are examined. The remaining part is more policy oriented, describing and analysing the practical solutions implemented in the European Union for energy transport pricing. The paper concludes with some remarks about the enforcement of antitrust rules in electricity transport.

JEL Classification: L52, L94