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A simple regulatory incentive mechanism applied to electricity transmission pricing and investment
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Authors and Corporations: | , , , |
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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
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Subjects: | |
Source: | Verbunddaten SWB Lizenzfreie Online-Ressourcen |
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. |
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Physical Description: | 1 Online-Ressource (circa 34 Seiten); Illustrationen |