Performance Incentives for Transmission

Markets for Financial Transmission Rights

“…On the contrary, a transmission company that benefits more from congestion than expansion would have no incentives to expand the network. Barmack et al (2003) claim that FTRs alone will not induce efficient operation and investment as a part of the United States' standard market design. They argue that an optimal incentive mechanism should meet at least two criteria.…”

“…Likewise, given the problems with allocating FTRs accurately, it may result in inefficient investments because investors are not allocated FTRs corresponding to the new capacity created. Barmack et al (2003) also claim that the allocation of FTRs to investors in small-scale projects such as capacitors, transformers, or breakers will be imprecise and may not correspond to the new capacity created.…”

A two-part tariff for financing transmission expansion

“…As many note (see, e.g., Pérez-Arriaga et al (1995) Joskow and Tirole (2005) and Barmack et al (2003)), lumpiness of transmission additions narrows, or even eliminates, the difference in LMPs between the nodes connected by the transmission addition, causing the value of incremental FTRs allocated to a project fall below the redispatch-cost savings attributable to the line (which several economists have argued the latter to be the project's social benefit). 2 This factor has frustrated incremental FTR allocation as a means of financing new transmission.…”

“…He also remarks that regulators in low-cost states cannot legally support a policy that will lower electricity prices in a neighboring state if it does so at the expense of consumers in their own state. Barmack et al (2003) add that "losers" from transmission investment can be expected to expend up to the amount of the rents they stand to lose to block transmission investment. Finally, Vogelsang (1999Vogelsang ( , 2006, Rubio-Odériz and Pérez-Arriaga (2000), and Hayden and Michaels (2006) (the latter implicitly) argue that political constraints imply that no interest group involved is made noticeably worse off.…”

Market dynamics driven by the decision-making of both power producers and transmission owners

“…Nevertheless, recent market design proposals have analyzed the possibility of providing incentives for transmission investments, and of promoting, through performance settlement criteria, a more efficient usage of the transmission network [1]- [2].…”