Introduction
Many countries are currently liberalizing their electricity industries. To enhance competition, most countries separate the transmission sector from the generation sector. They create competition in Generation and regulate the Transmission sector which is a natural monopoly.
The transmission network plays a crucial role in the liberalization process:
- It is an essential input for firms as it allows them to sell electricity to consumers
- It allows cost arbitrage: firms can produce electricity where it is cheapest
- It encourages competition between firms
Unfortunately, transmission capacity is limited by physical constraints. Only that much of energy can be transported until lines start to 'melt'.
Research Questions
The interaction of a regulated transmission network (a natural monopoly) and the generation market (an oligopoly) puts forward some interesting research questions:
How do market rules on the allocation of transmission capacity affect the outcome in the generation market?
Research Methodology
In order to study the first research question, the following steps are taken:
- First I compare several allocation rules in the simple case where there is only one generation firm.
- Then I study which simplifying assumptions are needed in order to model a Cournot oligopoly in a network set20 January, 2006 developed
Congestion Management and Market Power
In a series of paper I compare different allocations rules for scarce transmission capacity. To simplify the analysis, I assume that there is only one dominant generator. I shows that the mechanism to allocate transmission capacity is a determining factor for the market outcome. He compares the efficiency of the transmission market for several types of auctions, and shows that a more efficient transmission market is not always beneficial.
- Barring consumers from the electricity network might improve welfare. (Chapter 2, dissertation)
- Third degree price discrimination and costly arbitrage (Chapter 3, dissertation)
- Will an incumbent generator buy import transmission capacity, (Chapter 4 dissertation)
Modeling a Cournot Oligopoly
The second part of the analysis discusses several ways to ration transmission access when there is congestion on a transmission line. When the network operator tries too hard to skim the congestion rents of the generators, there will be less competition in generation, no congestion on the network, and the network operator obtains no revenue.
- Modeling Cournot Competition in an Electricity Market with Transmission Constraints
Numerical Simulation Models
In a third part of the analysis, a numerical simulation model was developed for the North-Western European electricity market. The objective of the model is to compare different congestion management schemes and to look how trading zones should be defined.
- Demonstration Study for the Belgian Electricity Regulator