Working Paper Series
Mario Blázquez de Paz
Transmission Costs, Transmission Capacities and their Influence on Market Power in Wholesale Electricity Markets
Abstract: The integration of electricity markets around the world
has increased the importance of congestion between countries/states and has
initiated a discussion of how to harmonize network tariffs. This paper
analyzes how the transmission capacity and the transmission cost, such as a
transmission tariff, influence bidding behavior in electricity markets. It
is shown that transmission costs can have seemingly counter-intuitive
effects. Normally, more transmission capacity would improve competition,
but this is not necessarily the case when one considers transmission costs.
The paper also illustrates that there are cases where increasing
transmission costs could have a pro-competitive effect and benefit
consumers. In contrast, point of connection tariffs, which are used in the
majority of the European countries, always push up electricity prices and
always hurt consumers.
Keywords: Electricity auctions; Wholesale electricity markets; Transmission capacity constraints; Network tariffs; Energy economics; (follow links to similar papers)
JEL-Codes: D43; D44; L13; L94; (follow links to similar papers)
47 pages, May 29, 2015, Revised December 16, 2015
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