Different Approaches Towards Electricity Transmission Expansion

Review of Network Economics, Vol. 2, No. 3, September 2003

32 Pages Posted: 9 Nov 2003  

Juan Rosellon

Centro de Investigacion y Docencia Economicas

Abstract

There is an intense debate regarding the best way to attract investment for the long-term expansion of an electricity transmission network. We study three hypotheses: the long-term financial-transmission-right hypothesis; the incentive-regulation hypothesis; and the market-power hypothesis. The first approach derives optimal transmission expansion through auctions of long-term financial transmission rights by an independent system operator. The second provides a Transco with incentives to expand the network by making it face the entire social cost of congestion. The third approach defines optimal transmission expansion according to the strategic behavior of generators. This paper discusses the analytical and practical strengths and weaknesses of each approach.

JEL Classification: L51, L94

Suggested Citation

Rosellon, Juan, Different Approaches Towards Electricity Transmission Expansion. Review of Network Economics, Vol. 2, No. 3, September 2003. Available at SSRN: https://ssrn.com/abstract=447843 or http://dx.doi.org/10.2139/ssrn.447843

Juan Rosellon (Contact Author)

Centro de Investigacion y Docencia Economicas ( email )

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

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