Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103373
Authors: 
Gerbaulet, Clemens
Weber, Alexander
Year of Publication: 
2014
Series/Report no.: 
DIW Discussion Papers 1404
Abstract: 
Despite the ongoing appetite of financial investors for merchant investments into the European electricity network, the EC is reluctant to approve such undertakings, thus implicitly favoring regulated investments. Based on a two-level model, we analyze the impact of profit-maximizing merchant transmission investment as compared to welfare-maximizing regulated transmission investment. We apply the model to the Baltic Sea region, which has in the past been subject to rapid interconnector development and still would benefit from increased interconnection. We obtain stable results indicating that merchant investment may well contribute to overall welfare, but at the same time, "the merchant takes it all", i.e. in many cases merchant profits are close to the overall efficiency gain, and sometimes even higher. These results underline that that distributional aspects, besides mere welfare arguments should be taken into account when analyzing the impact of merchant transmission investment.
Subjects: 
Merchant
Regulated
Transmission Expansion
MPEC
JEL: 
L51
L94
D30
D60
Document Type: 
Working Paper

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