Working Paper No. 1070

Transmission Costs, Transmission Capacities and their Influence on Market Power in Wholesale Electricity Markets

Published: May 29, 2015, revised December 2015Pages: 47Keywords: Electricity auctions; Wholesale electricity markets; Transmission capacity constraints; Network tariffs; Energy economicsJEL-codes: D43; D44; L13; L94
Published version

Transmission Costs, Transmission Capacities and their Influence on Market Power in Wholesale Electricity Markets Mario Blázquez de Paz


The integration of electricity markets around the world has increased the importance of congestion between countries/states and has initiated a discussion of how to harmonize network tariffs. This paper analyzes how the transmission capacity and the transmission cost, such as a transmission tariff, influence bidding behavior in electricity markets.

It is shown that transmission costs can have seemingly counter-intuitive effects. Normally, more transmission capacity would improve competition, but this is not necessarily the case when one considers transmission costs. The paper also illustrates that there are cases where increasing transmission costs could have a pro-competitive effect and benefit consumers. In contrast, point of connection tariffs, which are used in the majority of the European countries, always push up electricity prices and always hurt consumers.

Interdisciplinary European Studies

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This book explores the complex and ever-changing relationship between the European Union and its member states. The recent surge in tension in this relationship has been prompted by the actions of some member state governments as they question fundamental EU values and principles and refuse to implement common decisions seemingly on the basis of narrowly defined national interests.

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