Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/100459 
Year of Publication: 
2014
Series/Report no.: 
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2014: Evidenzbasierte Wirtschaftspolitik - Session: Energy Markets No. G11-V4
Publisher: 
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft, Kiel und Hamburg
Abstract: 
Lack of transmission capacity hampers the efficient integration of the European electricity market, and thereby precludes reaping the full benefits of competition. We investigate to what extent the expansion of the transmission grid promotes competition, efficiency, and welfare. This work proposes a three-stage model for grid investment: a benevolent planner decides on network upgrades; she considers the welfare benefits of investment through a reduction of market power exertion by strategic generators. These firms anticipate their impact on the Independent System Operator and are able to exert market power, in particular when lines are congested. We illustrate the model on a simple three-node network. Results indicate that network expansion indeed provides a suitable way of enhancing welfare due to a reduction of market power potential.
JEL: 
L13
L51
C61
Document Type: 
Conference Paper

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