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Sustainable transmission planning in imperfectly competitive electricity industries: Balancing economic and environmental outcomes
Stockholm University, Faculty of Social Sciences, Department of Computer and Systems Sciences. University College London, United Kingdom.
Number of Authors: 32019 (English)In: European Journal of Operational Research, ISSN 0377-2217, E-ISSN 1872-6860, Vol. 275, no 1, p. 208-223Article in journal (Refereed) Published
Abstract [en]

We explore the role of a transmission system operator (TSO) that builds a transmission line to accommodate renewable energy in order to lower emissions as required by government policy. In contrast to central planning, a TSO in a deregulated electricity industry can only indirectly influence outcomes through its choice of the transmission line capacity. Via a bi-level model, we show that this results in less transmission capacity and with limited emissions control in a perfectly competitive industry vis-a-vis a benchmark centrally planned system. A carbon charge on industry that fully accounts for the cost of pollution damage leads to a perfect alignment of incentives and maximised social welfare only under perfect competition. By contrast, a carbon charge may actually lower social welfare under a Cournot oligopoly as the resulting reduction in consumption facilitates the further exercise of market power.

Place, publisher, year, edition, pages
2019. Vol. 275, no 1, p. 208-223
Keywords [en]
OR in environment and climate change, Transmission planning, Bi-level modelling, Market power
National Category
Economics and Business Civil Engineering
Identifiers
URN: urn:nbn:se:su:diva-166642DOI: 10.1016/j.ejor.2018.11.032ISI: 000457814100016OAI: oai:DiVA.org:su-166642DiVA, id: diva2:1296377
Available from: 2019-03-15 Created: 2019-03-15 Last updated: 2019-03-15Bibliographically approved

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Siddiqui, Afzal S.Chen, Yihsu
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