Freeman Spogli Institute for International Studies Program on Energy and Sustainable Development Stanford University

Incentive Mechanisms for Electricity Transmission Expansion  
Seminar Series

Date and Time
January 26, 2009
4:15 PM - 5:45 PM

Open to the public
No RSVP required

Juan Rosellón - Professor of Economics at Centro de Investigación y Docencia Económicas, Mexico

Electricity transmission pricing and transmission grid expansion have received increasing regulatory and analytical attention in recent years. There are two disparate approaches to transmission investment: one employs the theory based on long-run financial rights (LTFTR) to transmission (merchant approach), while the other is based on the incentive-regulation hypothesis (regulatory approach). The transmission firm (Transco) is regulated through benchmark or price regulation to provide long-term investment incentives. In this presentation I consider the elements that could combine the merchant and regulatory approaches in a setting with price-taking electricity generators and loads. A new price-cap incentive mechanism for electricity transmission expansion is proposed based upon redefining transmission output in terms of point-to-point transactions. The mechanism applies the incentive regulatory logic of rebalancing the variable and fixed parts of a two-part tariff to promote efficient, long-term expansion.

Reuben W. Hills Conference Room
Encina Hall
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Stanford University
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