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A simple regulatory incentive mechanism applied to electricity transmission pricing and investment

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Bibliographic Details
Authors and Corporations: Hesamzadeh, Mohammad Reza (Author), Rosellón, Juan (Author), Gabriel, Steven A. (Author), Vogelsang, Ingo (Author)
Other Authors: Rosellón, Juan [Author] • Gabriel, Steven A. [Author] • Vogelsang, Ingo 1943- [Author]
Type of Resource: E-Book
Language: English
published:
Series: Deutsches Institut für Wirtschaftsforschung: Discussion papers ; 1696
Subjects:
Source: Verbunddaten SWB
Lizenzfreie Online-Ressourcen
Description
Summary: The informationally simple approach to incentive regulation applies mechanisms that translate the regulator’s objective function into the firm’s profit-maximizing objective. These mechanisms come in two forms, one based on subsidies/taxes,the other based on constraints/ price caps. In spite of a number of improvements and a good empirical track record simple approaches so far remain imperfect. The current paper comes up with a new proposal, called H-R-G-V, which blends the two traditions and is shown to apply well to electricity transmission pricing and investment. In particular, it induces immediately optimal pricing/investment but is not based on subsidies. In the transmission application, the H-RG- V approach is based on a bilevel optimization with the transmission company (Transco) at the top and the independent system operator (ISO) at the bottom level. We show that HR- G-V, while not perfect, marks an improvement over the other simple mechanisms and a convergence of the two traditions. We suggest ways to deal with remaining practical issues of demand and cost functions changing over time.
Physical Description: 1 Online-Ressource (circa 34 Seiten); Illustrationen