Electricity (and natural gas) transmission under Transformation-an introduction
Journal
Economics of Energy and Environmental Policy
ISSN
2160-5882
Date Issued
2018
Author(s)
Type
text::journal::journal article
Abstract
Electricity transmission is typically a natural monopoly so that it requires some type of external public intervention to achieve efficiency in its development. Usually, transmission sec¬tors suffer from congestion “traps” where congestion rents are so high that marginal revenues from keeping a network stalled in congestion are more profitable for a transmission company than expanding the grid. Additionally, designing optimal regulatory mechanisms for trans¬mission is especially complex in electricity markets given the specific physical characteristics of electricity networks like negative local externalities due to loop flows, i.e., flows obeying Kirchhoff’s laws (Schweppe et. al., 1988). One approach to transmission expansion has been traditional central planning either carried within a vertically integrated utility, an ISO or by a regulatory authority. This planning approach is usually complemented with some type of transmission tariff regulation frequently relying on cost-of-service regulation or, sometimes, on revenue caps for maintenance costs (Kemfert et al, 2016). In contrast, and at least from an analytical perspective, transmission decisions could also be determined in a fully decentral¬ized non-regulated way, relying on some form of incentive price-cap regulation (Hogan et al., 2010). Copyright ©2018 by the IAEE. All rights reserved.