Merchant interconnector projects by generators in the EU: profitability and allocation of capacity

0377135 - NHÚ 2013 RIV GB eng J - Journal Article
van Koten, Silvester
Merchant interconnector projects by generators in the EU: profitability and allocation of capacity.
Energy Policy. Roč. 41, February (2012), s. 748-758. ISSN 0301-4215. E-ISSN 1873-6777
R&D Projects: GA MŠMT LC542
Institutional research plan: CEZ:AV0Z70850503
Keywords : regulation * cross-border electricity transmission * vertical integration
Subject RIV: AH - Economics
Impact factor: 2.743, year: 2012

When building a cross-border transmission line (a so-called interconnector) as a for-profit (merchant) project, where the regulator has required that capacity allocation be done non-discriminatorily by explicit auction, the identity of the investor can affect the profitability of the interconnector project and, once operational, the resulting allocation of its capacity. Specifically, when the investor is a generator (hereafter the integrated generator) who also can use the interconnector to export its electricity to a distant location, then, once operational, the integrated generator will bid more aggressively in the allocation auctions to increase the auction revenue and thus its profits. As a result, the integrated generator is more likely to win the auction and the capacity is sold for a higher price. This lowers the allocative efficiency of the auction, but it increases the expected ex-ante profitability of the merchant interconnector project. Unaffiliated, independent generators, however, are less likely to win the auction and, in any case, pay a higher price, which dramatically lowers their revenues from exporting electricity over this interconnector.
Permanent Link: http://hdl.handle.net/11104/0209378