Search

Begin New Search
Proceed to Checkout

Search Results for All:
(Showing results 1 to 7 of 7)



Economic Inefficiency of Passive Transmission Rights in Congested Electricity Systems with Competitive Generation

Shmuel S. Oren

Year: 1997
Volume: Volume18
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol18-No1-3
View Abstract

Abstract:
The main thesis of this paper is that passive transmission rights such as Transmission Congestion Contracts (TCCs) that are compensated ex-post based on nodal prices resulting from optimal dispatch by an Independent System Operator (ISO) will be preempted by the strategic bidding of the generators. Thus, even when generation is competitive, rational expectations of congestion will induce implicit collusion enabling generators to raise their bids above marginal costs and capture the congestion rents, leaving the TCCs uncompensated. These conclusions are based on a Cournot model of competition across congested transmission links where an ISO dispatches generators optimally based on bid prices. We characterize the Cournot equilibrium in congested electricity networks with two and three nodes. We show that absent active transmission rights trading, the resulting equilibrium may be at an inefficient dispatch and congestion rents will be captured by the generators. We also demonstrate how active trading of transmission rights in parallel with 42 competitive energy market can prevent the price distortion and inefficient dispatch associated with passive transmission rights.



An Institutional Design for an Electricity Contract Market with Central Dispatch

Hung-po Chao and Stephen Peck

Year: 1997
Volume: Volume18
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol18-No1-4
View Abstract

Abstract:
In Chao and Peck (1996), we introduced a new approach to the design of an efficient electricity market that incorporates externalities due to loop flows. This approach enables an innovative flow-based bidding scheme for pricing transmission services. In the short term, due to some technological constraints, a hybrid institutional structure that encompasses a decentralized contract market (via the system operator) is necessary for implementation. In this paper, we present an incentive scheme that fosters efficiency and reliability within such art institutional structure. An essential ingredient is that the system operator provides all electricity traders choices of priority insurance against interruptions. We show how this scheme will ensure the integrity of the electrical contract market and provide the system operator incentives to maintain system reliability in all efficient manner in real-time dispatch.



Financial Transmission Rights Meet Cournot: How TCCs Curb Market Power

Steven Stoft

Year: 1999
Volume: Volume20
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-No1-1
View Abstract

Abstract:
This paper reconsiders the problem of market power when generators face a demand curve limited by a transmission constraint. After demonstrating that the problem's importance originates in an inherent ambiguity in Cournot-Nash theory, I review Oren's (1997a) argument that generators in this situation capture all congestion rents. In the one-line case, this argument depends on an untested hypothesis while in the three-line case, the Nash equilibrium was misidentified. Finally, the argument that financial transmission rights (and TCCs in particular) will have zero market value is refuted by modeling the possibility of their purchase by generators. This allows transmission owners, who initially own the TCCs, to capture some of the congestion rent. In fact when total capacity exceeds line capacity by more than the capacity of the largest generator, TCCs should attain their perfectly competitive value, thereby curbing the market power of generators.



The Competitive Effects of Ownership of Financial Transmission Rights in a Deregulated Electricity Industry

Manho Joung, Ross Baldick, and You Seok Son

Year: 2008
Volume: Volume 29
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No2-9
View Abstract

Abstract:
In this paper, we investigate how generators� ownership of financial transmission rights (FTRs) may influence the effects of the transmission lines on competition. In order for concrete analysis, a simple symmetric market model is introduced and FTRs are modeled in two different forms: FTR options and FTR obligations. This paper shows that introducing FTRs in an appropriate manner may reduce the physical capacity needed for the full benefits of competition. Among the competitive effects of ownership of FTRs, we focus on the effects on two possible pure strategy equilibria: the unconstrained Cournot equilibrium and the passive/aggressive equilibrium. We also analyze an extension of the model: asymmetric markets. Finally, a numerical illustration of applying the analysis is presented.



Market Design for Long-Distance Trade in Renewable Electricity

Richard Green, Danny Pudjianto, Iain Staffell and Goran Strbac

Year: 2016
Volume: Volume 37
Number: Bollino-Madlener Special Issue
DOI: 10.5547/01956574.37.SI2.rgre
View Abstract

Abstract:
While the 2009 EU Renewables Directive allows countries to purchase some of their obligation from another member state, no country has yet done so, preferring to invest locally even where load factors are very low. If countries specialised in renewables most suited to their own endowments and expanded international trade, we estimate that system costs in 2030 could be reduced by 5%, or €15 billion a year, after allowing for the costs of extra transmission capacity, peaking generation and balancing operations needed to maintain electrical feasibility. Significant barriers must be overcome to unlock these savings. Countries that produce more renewable power should be compensated for the extra cost through tradable certificates, while those that buy from abroad will want to know that the power can be imported when needed. Financial Transmission Rights could offer companies investing abroad confidence that the power can be delivered to their consumers. They would hedge short-term fluctuations in prices and operate much more flexibly than the existing system of physical point-to-point rights on inter-connectors. Using FTRs to generate revenue for transmission expansion could produce perverse incentives to under-invest and raise their prices, so revenues from FTRs should instead be offset against payments under the existing ENTSOE compensation scheme for transit flows. FTRs could also facilitate cross-border participation in capacity markets, which are likely to be needed to reduce risks for the extra peaking plants required.



Introduction of Nodal Pricing into the new Mexican Electricity Market through FTR Allocations

Friedrich Kunz, Juan Rosellón, and Claudia Kemfert

Year: 2017
Volume: Volume 38
Number: KAPSARC Special Issue
DOI: 10.5547/01956574.38.SI1.fkun
View Abstract

Abstract:
The change from a subsidized zonal pricing system to a full nodal pricing regime in the new Mexican electricity market could improve the efficiency of electricity system operation. However, resulting price modifications might also swing surplus across producers and consumers. In this paper, we calculate nodal prices for the Mexican power system and further analyze how allocations of financial transmission rights (FTRs) can be used to mitigate resulting distributional effects. The share of FTRs to be allocated to different generation plants and loads is studied as a second step of an electricity tariff subsidy reform agenda that includes, as a first step, the change to nodal pricing and, as a third step, the reformulation of actual regressive subsidies in a progressive way. We test our model in a realistic nodal price setting, based on an hourly modeling of the Mexican power system.



Price Formation in Auctions for Financial Transmission Rights

Jeff Opgrand, Paul V. Preckel, Douglas J. Gotham, and Andrew L. Liu

Year: 2022
Volume: Volume 43
Number: Number 3
DOI: 10.5547/01956574.43.3.jopg
View Abstract

Abstract:
Financial Transmission Rights (FTRs) are financial derivatives in wholesale electricity markets that are sold in auctions. The revenue collected from FTR auctions is passed through to electricity customers to reimburse them for transmission congestion payments they make in the spot energy market. On average, electricity customers' congestion payments greatly exceed auction reimbursements in electricity markets across the United States. We study the issue of auction revenue deficiency through the lens of Auction Revenue Rights (ARRs), which is the predominant mechanism used in U.S. electricity markets to distribute auction revenue to electricity customers. We demonstrate how the ARR process influences fundamental supply conditions in the FTR auction market and show how divergent auction equilibria emerge under different ARR decision-making regimes. Using market data from PJM, we find empirical evidence that variation in ARR management strategies helps explain differences between an FTR's auction price and its realized ex post value.





Begin New Search
Proceed to Checkout

 

© 2022 International Association for Energy Economics | Privacy Policy | Return Policy