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Incentive Mechanisms for Electricity Transmission Expansion

Seminar

Speakers

Juan Rosellón, Centro de Investigación y Docencia Económicas, Mexico

Date and Time

January 26, 2009 4:15 PM - 5:45 PM

Availability

Open to the public.

No RSVP required

Location

Reuben W. Hills Conf RoomEncina Hall 616 Serra St., 2nd floor Stanford University Stanford, CA 94305

Electricity transmission pricing and transmission grid expansion have received increasing regulatory and analytical attention in recent years. There are two disparate approaches to transmission investment: one employs the theory based on long-run financial rights (LTFTR) to transmission (merchant approach), while the other is based on the incentive-regulation hypothesis (regulatory approach). The transmission firm (Transco) is regulated through benchmark or price regulation to provide long-term investment incentives. In this presentation I consider the elements that could combine the merchant and regulatory approaches in a setting with price-taking electricity generators and loads. A new price-cap incentive mechanism for electricity transmission expansion is proposed based upon redefining transmission output in terms of point-to-point transactions. The mechanism applies the incentive regulatory logic of rebalancing the variable and fixed parts of a two-part tariff to promote efficient, long-term expansion.

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