Universidad Pontificia Comillas. Madrid (Spain)
May 30th, 2006
Summary:
This thesis is about the regulation of the activity of transmission in regional electricity markets. Transmission regulation has frequently been a contentious topic when trying to introduce competition in national markets and, without any doubt, is the major stumbling block in the creation of regional markets. This thesis draws from multiple experiences in the development of supra national markets, and the best conceptual contribution from regulatory economics applied to transmission networks, in order to propose sound mechanisms for the organization of the transmission activity in regional electricity markets. The main issues covered within electricity transmission are the regulation of the expansion of the transmission grid, the computation of transmission tariffs, or allocation of the sunk costs of the transmission grid, and the regulation of the access of market agents to the transmission grid with a special focus on the management of congestion in the grid.
First of all, we consider the case where the political, institutional and regulatory frameworks existing in a region allow all the local markets within the region to work as a single one. This is the so-called reference case. A comprehensive regulatory package for transmission that is tailored to this reference case has been developed. In the second place, the thesis examines how this reference regulation could be applied in several existing representative regional markets, namely the Internal Electricity Market of the European Union (IEM), the regional electricity market in Central America (MER) and the regional markets under development in the USA. In other words, the regulation developed for the ideal, reference case is adapted to match the circumstances existing in each of these three regions. For each of the three regional markets, a comprehensive set of regulatory recommendations is provided which are aimed at achieving the integration and efficient functioning of this market. At this point, the focus was on devising a design for the transmission activity that could be implemented in the corresponding region. Therefore, the strategies proposed were sometimes suboptimal.
Besides, several specific topics in transmission regulation are explored in more depth. These include: a) the choice of an adequate method to compute compensations among countries for the external use that is made of their networks, b) an in depth, critical analysis of the method of Average Participations (AP), which is aimed at allocating the sunk costs of the transmission grid to generators and consumers, c) the design of a novel method to allocate the sunk cost of the grid to market agents. This method is based on electrical usage like AP but, unlike the former, the new method takes also into account the time that market agents and transmission lines have been operating for, d) the design of the most adequate locational signals to be embedded in transmission charges to be sent to market agents under different circumstances, e) the analysis of the set of rules to be applied in order to decide on the construction of new transmission lines (the so-called regulatory test), f) the identification of Single Price Areas (SPAs) for the successful application of coordination schemes in congestion management and g) the identification of a balancing point for the definition of transmission rights.
Citation:
L. Olmos (2006), Diseño regulatorio de la actividad de transporte en mercados de electricidad regionales. Universidad Pontificia Comillas. Madrid (Spain).
