IAEE Members and subscribers to The Energy Journal: Please log in to access the full text article or receive discounted pricing for this article.

Evaluating an Interconnection Project: Do Strategic Interactions Matter?

High-Voltage Direct Current (HVDC) merchant transmission lines allow trade across separate power markets and often in different countries. Flows on existing cross-border lines are often assessed as suboptimal, which may be due to the light regulation that often prevails in these cases. This paper studies the impact of market power on HVDC interconnections as a determinant of imperfect arbitrage. We assess the impact of Physical Transmission Rights (PTRs) allocation on the management of an HVDC interconnection between a thermal and a hydroelectricity market, assuming dynamic water management. We use a two-stage game formulated as an Equilibrium Problem with Equilibrium Constraints (EPEC) to model the strategic trade between the New York (US) and Quebec (Canada) systems. The numerical model is calibrated with public data. We find that although the interconnection can create wealth, a high concentration of PTRs can destroy value because of dumping strategies. The impact of trade on local price levels may be of concern and calls for the functional unbundling of traders and generators.

Purchase ( $25 )

Energy Specializations: Electricity – Distributed Generation; Energy Modeling – Energy Data, Modeling, and Policy Analysis; Energy Modeling – Forecasting and Market Analysis

JEL Codes: F18: Trade and Environment, Q42: Alternative Energy Sources, Q53: Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling, Q48: Energy: Government Policy, Q21: Renewable Resources and Conservation: Demand and Supply; Prices, D44: Auctions, L11: Production, Pricing, and Market Structure; Size Distribution of Firms, D47: Market Design

Keywords: Electricity, Interconnection, Dumping, HVDC, PTR, EPEC

DOI: 10.5547/01956574.39.6.sdeb

References: Reference information is available for this article. Join IAEE, log in, or purchase the article to view reference data.

Published in Volume 39, Number 6 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


© 2023 International Association for Energy Economics | Privacy Policy | Return Policy