Transmission planning in an imperfectly competitive power sector with environmental externalities
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A1 Alkuperäisartikkeli tieteellisessä aikakauslehdessä
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Date
2024-06
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Language
en
Pages
21
Series
Energy Economics, Volume 134, pp. 1-21
Abstract
Policymakers face the challenge of integrating intermittent output from variable renewable energy (VRE). Even in a well-functioning power sector with flexible generation, producers’ incentives may not align with society’s welfare-maximisation objective. At the same time, political pressure can obstruct policymakers from pricing damage from CO emissions according to its social costs. In facilitating decarbonisation, transmission planning will have to adapt to such economic and environmental distortions. Using a Stackelberg model of the Nordic power sector, we find that a first-best transmission-expansion plan involves better resource sharing between zones, which actually reduces the need for some VRE adoption. Next, we allow for departures from perfect competition and identify an extended transmission-expansion plan under market power by nuclear plants. By contrast, temporal arbitrage by hydro reservoirs does not necessitate transmission expansion beyond that of perfect competition because it incentivises sufficient VRE adoption using existing lines. Meanwhile, incomplete CO pricing under perfect competition requires a transmission plan that matches hydro-rich zones with sites for VRE adoption. However, since incomplete CO pricing leaves fossil-fuelled generation economically viable, it reduces the leverage of strategic producers, thereby catalysing less (more) extensive transmission expansion under market power by nuclear (hydro) plants.Description
Keywords
Hydropower, Environmental policy, Electricity markets, Market power, Transmission planning, Game theory
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Citation
Hassanzadeh Moghimi, F, Boomsma, T & Siddiqui, A 2024, ' Transmission planning in an imperfectly competitive power sector with environmental externalities ', Energy Economics, vol. 134, 107610, pp. 1-21 . https://doi.org/10.1016/j.eneco.2024.107610