Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103342
Authors: 
Brandstätt, Christine
Brunekreeft, Gert
Friedrichsen, Nele
Year of Publication: 
2011
Series/Report no.: 
Bremen Energy Working Papers 10
Abstract: 
Smart contracts based on voluntary participation and optionality can be a low transaction cost solution to implement locational signals in distribution networks and thereby avoid network investment. This paper examines the efficiency properties of smart contracts. Based on a three-node example network we show that cases exist in which smart contracts can achieve a pareto-improvement compared to the status-quo even with voluntary participation. With the pareto improvement at least one party is better of under a smart contract without worsening the situation for anyone else. We note that this requirement is very restrictive and leaves significant potential for efficiency improvements by smart contracts untapped. We then discuss the implementation of smart contracts with incentive regulation. There are two main tasks for the regulator: allowing network operators flexibility to offer such contracts and incentivizing network operators to do so.
Subjects: 
network investment
distribution networks
locational pricing
smart contracts
JEL: 
D23
D43
L14
L22
Document Type: 
Working Paper

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