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Working Paper No. 1394

National Transmission System Operators in an International Electricity Market

Working Paper
Horn, Henrik and Thomas Tangerås (2021). “National Transmission System Operators in an International Electricity Market”. IFN Working Paper No. 1394. Stockholm: Research Institute of Industrial Economics (IFN).

Henrik Horn, Thomas Tangerås

This paper develops a framework for analyzing the incentives of national transmission system operators (TSOs) to supply cross-border interconnection capacity in an international electricity market. Our results show that equilibrium transmission capacity is downward distorted, even in situations where full capacity utilization is inefficient. We derive a method for quantifying these distortions and propose a market design that uniquely implements efficient dispatch of electricity. In this design, the distribution of trade adjustment payments causes TSOs to internalize the full e¤ect of network congestion. The design would improve, for instance, on the current European market design.

Henrik Horn

+46 (0)8 665 45 40

Thomas Tangerås

+46 (0)8 665 4526
+46 (0)70 727 5448