Working paper

Transmission constraints and strategic underinvestment in electric power generation

Thomas-Olivier Léautier

Abstract

This article is the first to examine electric power producers' investment decisions when com- petition is imperfect and the transmission grid congested. This analysis yields numerous original insights. First, congestion on the grid is transient, and may disappear when demand is highest. Second, transmission capacity increases have complex impacts on generation: they may increase, decrease, or have no impact on the marginal value of generation, and may have similar or opposite impacts on the marginal value of different technologies. Third, the true social value of transmission, including its impact on investment, may be significantly lower than is commonly assumed.

Keywords

electric power markets; imperfect competition; investment; transmission constraints;

JEL codes

  • D61: Allocative Efficiency • Cost–Benefit Analysis
  • L11: Production, Pricing, and Market Structure • Size Distribution of Firms
  • L94: Electric Utilities

See also

Published in

TSE Working Paper, n. 13-459, January 6, 2014