Providing efficient network access to green power generators: A long-term property rights perspective

This paper analyses the dynamic efficiency of several types of access regulation of a bottleneck transmission line in electricity markets.

Publishing date: 02 November 2016
Authors: Georgios Petropoulos Bert Willems

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Coordinating the timing and location of new production facilities is one of the challenges of liberalized power sectors. It is complicated by the presence of transmission bottlenecks, oligopolistic competition, and the unknown prospects of low-carbon technologies.

The authors build a model encompassing a late and early investment stage, a clean (green) and dirty (brown) technologies, and a single transmission bottleneck and compare dynamic efficiency of several market designs.

Allocating network access on a short-term competitive basis distorts investment decisions as brown firms will pre-empt green competitors by investing early. Compensating early investors for future network congestion, as for instance in the E.U., only exacerbates this problem.

Dynamic efficiency is restored with long-term transmission rights that can be traded on a secondary market (iusvendendi). As early investment lowers the resale value of the transmission rights, brown firms will invest optimally.

The authors show that dynamic efficiency does not require the existence of physical rights for accessing the transmission line (ius utendi), but financial rights on receiving the scarcity revenues generated by the transmission line (ius fructendi) suffice.

About the authors

Georgios Petropoulos

Georgios Petropoulos joined Bruegel as a visiting fellow in November 2015 and was a resident fellow from April 2016 to February 2022. Since March 2022, he is a non-resident fellow. He is Research Associate at MIT, Digital Fellow at Stanford University and CESifo Network affiliate. Georgios’ research focuses on the implications of digital technologies on innovation, competition policy and labour markets. He is currently studying how digital platforms should be regulated, what the relationship between big data and market competition is, as well as how the adoption of robots and information technologies affect labour markets, employment and wages. He holds a Bachelor’s degree in Physics, Master’s degrees in mathematical economics and econometrics and a PhD degree in Economics. He has also studied Astrophysics at a Master's level.
Bert Willems

Bert Willems is associate professor of economics at Tilburg University. His main research interests include industrial organisation, market design, competition policy and game theory, with a particular focus on energy markets.

Bert is vice-president of the Benelux Association for Energy Economics (BAEE) and senior member of the Tilburg Law and Economics Center (TILEC). Before joining Tilburg University, he held research positions at the Florence School of Regulation and the University of California Energy Institute. He has a PhD in Economics and a M.Sc. in Mechanical Engineering, both from KU Leuven.