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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.



Transition and Integration of the ERCOT Market with the Competitive Renewable Energy Zones Project

Xiaodong Du and Ofir D. Rubin

Year: 2018
Volume: Volume 39
Number: Number 4
DOI: 10.5547/01956574.39.4.oru
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Abstract:
In this study, we seek to explore the impact of a state level transmission expansion project, the Competitive Renewable Energy Zones (CREZ), whose goal is to integrate a massive amount of wind energy, on the wholesale market prices in the Electric Reliability Council of Texas (ERCOT). We find strong evidence for price convergence across ERCOT with accordance to the timing of the expansion of major sections of the CREZ. A variety of empirical analyses shows a gradual transition to a well-integrated market. We also find that regional-specific shocks became more important in terms of driving price change in other regions. Specifically, the impacts of Houston (demand) and the West (wind supply) on each other and the North and South regions have increased significantly. Our study contributes to the literature by connecting the expansion of physical transmission lines with electricity market integration.



Transmission Integration and the Market for Congestion Revenue Rights

Gaurav Doshi and Xiaodong Du

Year: 2021
Volume: Volume 42
Number: Number 5
DOI: 10.5547/01956574.42.5.gdos
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Abstract:
Texas electricity market saw a recent integration of electricity transmission as a part of Competitive Renewable Energy Zones (CREZ). Exploiting the commissioning date of CREZ based transmission integration as an exogenous shock, we analyze the effect of transmission expansion on market clearing prices of Congestion Revenue Rights (CRR). Reduced form estimates suggest that excess transmission led to a lowering of CRR prices for contracts at all Times of Use. We find strong evidence of spatial, distributional, and firm specific heterogeneity. The paper shows that transmission expansion enhanced efficiency of the CRR market in terms of a spatial convergence in prices and a decrease in aggregate auction expenditure of approximately $260 million over a period of 4.5 years post CREZ.





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