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Transmission Expansion Benefits: The Key to Redesigning the Regulation of Electricity Transmission in a Regional Context

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Achieving a sufficient and efficient development of the transmission grid in the new low-carbon and region-wide coordinated electricity markets being created will be central to their success. This requires setting up the required institutional framework and cost allocation arrangements, which is specially challenging when the relevant market covers several independent countries or administrative areas (like states or provinces). The features of the set of institutions to have in place and the interactions among them, as well as the network cost allocation arrangements implemented, are critical issues to ensure an efficient and sufficient development of the grid. This paper addresses those issues and argues that they should be defined with the aim to properly take into account the benefits to be produced by network reinforcements, since these are driven by the benefits they produce. This article discusses how the expected benefits of transmission network expansion projects should affect the organization of the expansion of the grid, the expansion planning algorithms applied and the allocation of the cost of network reinforcements. After discussing the definition of the principles to be applied to these activities in an integrated system, the implications of these in a regional, or multi-system, context are provided.
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JEL Codes:L51: Economics of Regulation, L94: Electric Utilities, Q41: Energy: Demand and Supply; Prices

Keywords: Transmission benefits, Network expansion planning, Network cost allocation, Expansion planning institutional design, Regional markets

DOI: 10.5547/2160-5890.7.1.lolm

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Published in Volume 7, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.