Working Paper No. 1158

Production or Transmission Investments? A Comparative Analysis

Published: March 21, 2017Pages: 41Keywords: Electricity auctions; Wholesale electricity markets; Transmission capacity constraints; Investment transmission capacity; Investment production capacity;JEL-codes: D43; D44; L13; L94

Production or Transmission Investments? A Comparative Analysis Mario Blázquez de Paz


A successful transformation to a carbon neutral energy system requires the correct investments in transmission and production capacity. In a zonal pricing electricity market, the one proposed by the European Commission to integrate the European electricity markets, I analyze the effects that investments in transmission and production capacity have on consumer welfare and suppliers’ profits.

In the specific setting of this paper, I show that when the competition is perfect, an investment in transmission capacity between zones (inter Transmission System Operator (TSO) investment) and an investment in production capacity generate the same equilibrium outcome allocations. In contrast, when the competition is imperfect, an inter TSO investment and an investment in production capacity generate different equilibrium outcome allocations.

Interdisciplinary European Studies

The European Union in a Changing World Order

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This book explores how the European Union responds to the ongoing challenges to the liberal international order. These challenges arise both within the EU itself and beyond its borders, and put into question the values of free trade and liberal democracy. 

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