Economic inefficiency of passive transmission rights in congested electricity systems with competitive generation
- Univ. of California, Berkeley, CA (United States)
In their paper, Harvey, Hogan and Pope (1996) argue that trading, reconfiguration and opportunity cost compensation of TCRs can be accomplished within a pool-based system by turning these TCRs over to the ISO in return for TCCs. The optimal dispatch by the ISO can be viewed as an optimal reconfiguration which maximizes the value of the TCRs and the opportunity costs (or value) resulting from such reconfiguration accrues to the TCC holders. The argument that transmission trading is implicit in economic dispatch fails, however, to recognize the strategic implication of replacing active trading in transmission capacity with passive ownership compensated ex-post based on the energy trading outcomes. The analysis supporting the above argument and its conclusion hinge on the premises that the energy market does not react to the way in which transmission property rights are being exercised, and that in the absence of locational market power in generation bid prices will be driven to marginal costs. These premises are based on economic theory that has not dealt explicitly with the implication of congested distribution channels and has not been substantiated by any empirical evidence. On the contrary, limited experimental results suggest that in the absence of active market participation by transmission rights owners, bid prices for generation may deviate from marginal costs which will defeat the TCC-based approach. 21 refs., 5 figs.
- Sponsoring Organization:
- USDOE
- OSTI ID:
- 430385
- Journal Information:
- Energy Journal, Journal Name: Energy Journal Journal Issue: 1 Vol. 18; ISSN ENJODN; ISSN 0195-6574
- Country of Publication:
- United States
- Language:
- English
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