The Competitive Effects of Ownership of Financial Transmission Rights in a Deregulated Electricity Industry

Abstract

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.. Manho Joung *, Ross Baldick*, and You Seok Son ** In this paper ; we investigate how generators' ownership of financial transmission rights (FTRs) may influence the effects of the transmission lines on competition. In order for concrete analysis , a simple symmetric market model is introduced and FTRs are modeled in two different forms: FTR options and FTR obligations. This paper shows that introducing FTRs in an appropriate manner may reduce the physical capacity needed for the full benefits of competition. Among the competitive effects of ownership of FTRs , we focus on the effects on two possible pure strategy equilibria: the unconstrained Cournot equilibrium and the passive/aggressive equilibrium. We also analyze an extension of the model: asymmetric markets. Finally , a numerical illustration of applying the analysis is presented. International Association for Energy Economics

Supply Function Equilibrium Over a Constrained Transmission Line II: Multiple Plants and Nodal Price Derivatives

“…In this example, the node 1 generators hold FTRs which are directed away from them, and the resulting incentive is to mark down offers. If they held FTRs directed towards them, we would obtain a result similar to those of Joskow and Tirole (2000) or Joung, Baldick, and Son (2008): that buying FTRs is equivalent to buying CfDs, which increases the un-contracted output of the generator, which increases the incentive to mark up offers.…”