Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/240537 
Year of Publication: 
2021
Series/Report no.: 
IFN Working Paper No. 1394
Publisher: 
Research Institute of Industrial Economics (IFN), Stockholm
Abstract: 
This paper develops a framework for analyzing the incentives of national transmission system operators (TSOs) to supply cross-border interconnection capacity in an international electricity market. Our results show that equilibrium transmission capacity is downward distorted, even in situations where full capacity utilization is inefficient. We derive a method for quantifying these distortions and propose a market design that uniquely implements efficient dispatch of electricity. In this design, the distribution of trade adjustment payments causes TSOs to internalize the full effect of network congestion. The design would improve, for instance, on the current European market design.
Subjects: 
International electricity market
Market design
Market power
Network congestion
JEL: 
F12
F15
L43
L94
Q27
Q41
Document Type: 
Working Paper

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