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| 1 |
ID:
128357
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2014.
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| Summary/Abstract |
In deregulated electricity markets, the transmission network is a key infrastructure for enabling competition in the generation sector. A deficient expansion of the transmission grid prevents the realization of the benefits in terms of efficiency associated with market mechanisms. Consequently, it is essential to provide clear investment policies and economic signals to attract timely and efficient transmission investments in order to develop the system at minimum cost meeting the requirements of generators and consumers, while keeping adequate levels of service quality and reliability. This paper proposes a modern tool of economic evaluation based on real options analysis that provides the regulator the ability to assess various incentives that would lead transmission investors to make efficient decisions in highly uncertain environments. Real options properly values partially irreversible investment decisions, such as to defer, modify or abandon an investment project in response to the arrival of new information or as uncertainties are resolved. Decisions are evaluated from the point of view of a transmission investor trying to maximize its own profits in the time period set to recover the capital invested. The results allow the study of the behavior of transmission investors regarding their decision making when they have the possibility to manage the option to defer, under different regulatory schemes that encourage the expansion of the transmission system.
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| 2 |
ID:
171380
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In actual energy-only markets, the high volatility of power prices affects the expected returns of generators. When dealing with irreversibility under uncertainty, deferring decisions to commit in new power plants, waiting for better information, is therefore a rational approach. Theoretical and empirical evidence suggests that such investment pattern determines the occurrence of construction cycles, which strongly compromise supply security. In order to supplement generators' revenues, several remuneration mechanisms have been devised over past years. Along this line, this work addresses the long-run dynamics of capacity adequacy and market efficiency with both a price-based and a quantity-based capacity remuneration policy. For that purpose, a recently-developed, stochastic simulation model is used as a benchmark. Hence, the optimal postponement of generation investment decisions is integrated into a long-run power market model by formulating the decision-making problem in the framework of Real Options Analysis. Results suggest that policymakers may exchange supply security (effectiveness) for energy prices to be paid by consumers (efficiency) when designing and implementing capacity remuneration mechanisms. By doing so, this article contributes to the ongoing debate regarding the design of incentive policies and efficient power markets by considering the microeconomics of investors’ decision-making under irreversibility and uncertainty.
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| 3 |
ID:
088953
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2009.
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| Summary/Abstract |
Competitive markets set a framework in which unregulated market-based interconnections are allowed and encouraged. However, the presence of merchant transmission lines in the role of interconnector raises questions about the impact of these agents on the market conditions and system operation. The interconnector could be allowed to withhold capacity in order to keep the price difference (and profit of it) or be enforced by a must-offer provision to bid all its capacity. In this paper, the long-term dynamic of a market interconnection is studied and analyzed in a test system through a bottom-up simulation model. The outcomes are measured by the level of electricity prices along the simulated period and the annual amount of energy not supplied. The results show that the prices are strongly affected in the average value and in the standard deviation. The benefits of an interconnection as regards reliability are not hidden by the merchant nature of the interconnector. The results of the simulation show that letting the interconnector to control the bids of capacity offered to the markets is not detrimental to the markets. However, there is a lost of benefits compared with the case of a mandatory must-offer provision if compared at the same capacity of transmission line.
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