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A Dynamic Incentive Mechanism for Transmission Expansion in Electricity Networks: Theory, Modeling, and Application

Juan Rosellón and Hannes Weigt

Year: 2011
Volume: Volume 32
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No1-5
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Abstract:
We propose a price-cap mechanism for electricity-transmission expansion based on redefining transmission output in terms of financial transmission rights. Our mechanism applies the incentive-regulation logic of rebalancing a two-part tariff. First, we test this mechanism in a three-node network. We show that the mechanism intertemporally promotes an investment pattern that relieves congestion, increases welfare, augments the Transco's profits, and induces convergence of prices to marginal costs. We then apply the mechanism to a grid of northwestern Europe and show a gradual convergence toward a common-price benchmark, an increase in total capacity, and convergence toward the welfare optimum.



Long-run Cost Functions for Electricity Transmission

Juan Rosellón, Ingo Vogelsang, and Hannes Weigt

Year: 2012
Volume: Volume 33
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol33-No1-5
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Abstract:
Electricity transmission has become the pivotal industry segment for electricity restructuring. Yet, little is known about the shape of transmission cost functions. Reasons for this can be a lack of consensus about the definition of transmission output and the complexitity of the relationship between optimal grid expansion and output expansion. Knowledge of transmission cost functions could help firms (Transcos) and regulators plan transmission expansion and could help design regulatory incentive mechanisms. We explore transmission cost functions when the transmission output is defined as point-to-point transactions or financial transmission right (FTR) obligations and particularly explore expansion under loop-flows. We test the behavior of FTR-based cost functions for distinct network topologies and find evidence that cost functions defined as FTR outputs are piece-wise differentiable and that they contain sections with negative marginal costs. Simulations, however, illustrate that such unusual properties do not stand in the way of applying price-cap incentive mechanisms to real-world transmission expansion. Key words: Electricity transmission, Cost function, Incentive regulation, Merchant investment, Congestion management



Investments in a Combined Energy Network Model: Substitution between Natural Gas and Electricity?

Jan Abrell and Hannes Weigt

Year: 2016
Volume: Volume 37
Number: Number 4
DOI: 10.5547/01956574.37.4.jabr
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Abstract:
Natural gas plays an important role in the future development of electricity markets, as it is the least emission-intensive fossil generation option and additionally provides the needed plant operating flexibility to deal with intermittent renewable generation. As both the electricity and the natural gas market rely on networks, congestion in one market may lead to changes in the other. In addition, investment in one market impacts investment in the other market to the extent that these investments may even become substitutes for each another. The objective of this paper is to develop a dynamic model representation of coupled natural gas and electricity network markets to test the potential interaction with respect to investments. The model is tested under simplified conditions as well as for a stylized European network setting. The results indicate that there is sufficient potential for investment substitution and market interactions that warrant the application of coupled models, especially with regard to simulations of long-term system developments. Keywords: Electricity network, Natural gas network, Europe, MCP



The Short and Long Term Impact of Europe’s Natural Gas Market on Electricity Markets until 2050

Jan Abrell and Hannes Weigt

Year: 2016
Volume: Volume 37
Number: Sustainable Infrastructure Development and Cross-Border Coordination
DOI: https://doi.org/10.5547/01956574.37.SI3.jabr
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Abstract:
The interdependence of electricity and natural gas is becoming a major energy policy and regulatory issue in all jurisdictions around the world. The increased role of gas fired plants in renewable-based electricity markets and the dependence on natural gas imports make this issue particular important for the European energy market. In this paper we provide a comprehensive combined analysis of electricity and natural gas infrastructure with an applied focus: We analyze three different scenarios of the long-term European decarbonization pathways, and analyze the interrelation between electricity and natural gas markets on investments in the long run and spatial aspects in the short run.





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