Merchant Investment Research Articles

Transmission and Wind Investment in a Deregulated Electricity Industry

Adoption of dispersed renewable energy technologies requires transmission network expansion. Besides the transmission system operator (TSO), restructuring of electricity industries has introduced a merchant investor (MI), who earns congestion rents from constructing new lines. We compare these two market designs via a stochastic bi-level programming model that has either the MI or the TSO making transmission investment decisions at the upper level and power producers determining generation investment and operation at the lower level while facing wind power variability. We find that social welfare is always higher under the TSO because the MI has incentive to boost congestion rents by restricting capacities of transmission lines. Such strategic behavior also limits investment in wind power by producers. However, regardless of the market design (MI or TSO), when producers behave à la Cournot, a higher proportion of energy is produced by wind. In effect, withholding of generation capacity by producers prompts more transmission investment since the TSO aims to increase welfare by subsidizing wind and the MI creates more flow to maximize profit.

Is There Still a Case for Merchant Interconnectors? Insights from an Analysis of Welfare and Distributional Aspects of Options for Network Expansion in the Baltic Sea Region

Despite ongoing appetite of financial investors for merchant investments into European electricity network, EC is reluctant to approve such undertakings, thus implicitly favoring regulated investments. Based on a two-level model, we analyze impact of profit-maximizing merchant transmission investment as compared to welfare-maximizing regulated transmission investment. We apply model to Baltic Sea region, which has in past been subject to rapid interconnector development and still would benefit from increased interconnection. We obtain stable results indicating that merchant investment may well contribute to overall welfare, but at same time, the merchant takes it all, i.e. in many cases merchant profits are close to overall efficiency gain, and sometimes even higher. These results underline that that distributional aspects, besides mere welfare arguments should be taken into account when analyzing impact of merchant transmission investment.

La structuration du football professionnel européen

Il ne fait aucun doute que le football revêt aujourd’hui une dimension économique. L’article montre que celle-ci ne relève pas d’une intrusion récente et inéluctable des forces financières qui porteraient atteinte à ce sport, mais que les investissements marchands dont le football est l’objet demeurent au contraire assujettis à sa logique spécifique. Loin d’être réductible à une lecture économique, l’espace footballistique européen n’est intelligible que si l’on met au jour les luttes symboliques et les enjeux sociaux qui le traversent et qui expliquent la prévalence de la « logique sportive » dans sa structuration.

Capacity Markets - Lessons Learned from the First Decade

Capacity markets were introduced in the U.S. in the late 1990s as a means to ensure resource adequacy in liberalized electricity markets where generation must be built by merchant investors rather than regulated entities. This paper provides a general introduction to these markets: why they exist, how they function, how well they have performed in their first decade of operation, and the current challenges they face. It shows that capacity markets can work to meet their objectives but will need to address various design challenges over the coming years.

Toward a combined merchant-regulatory mechanism for electricity transmission expansion

Electricity transmission pricing and transmission grid expansion have received increasing attention in recent years. There are two disparate approaches to transmission investment: one employs the theory based on long-run financial rights (LTFTR) to transmission (merchant approach), while the other is based on the incentive-regulation hypothesis (regulatory approach). In this paper we consider the elements that could combine the merchant and regulatory approaches in a setting with price-taking electricity generators and loads. The monopoly transmission firm (Transco) is regulated through benchmark or price regulation to provide long-term investment incentives. The two-part tariff approach used can be analyzed analytically only for well-behaved cost and demand functions. We explore a series of simplified transmission grids to argue that in a variety of circumstances those functions could have reasonable economic properties. The results suggest directions for further research to explore the properties of the cost functions and implications for design of practical incentive mechanisms and the integration with merchant investment in organized markets with LTFTRs.

A Price-Based Approach to Generation Investment Planning in Electricity Markets

A generation planning framework is developed for a competitive, energy-only electricity market. The framework developed combines decentralized merchant investment plans stemming from market signals and technological preferences, with centralized resource planning concepts to decide optimal time-ordered investment decisions. The investment decisions maximize the new entrants' net surpluses and minimize the consumer interruption cost, accounting for many uncertain variables and technical details. The optimal plan given by the main centralized framework represents the system planner's solution derived from the set of decentralized plans. An illustrative case study is given in the paper, applying the proposed framework to the Queensland region of the National Electricity Market of Australia.

Nuclear Power: A Hedge against Uncertain Gas and Carbon Prices?

High fossil fuel prices have rekindled interest in nuclear power. This paper identifies specific characteristics making nuclear power unattractive to merchant generators in liberalized electricity markets, and argues that non-fossil fuel technologies have an overlooked ‘option value’ given fuel and carbon price uncertainty. Stochastic optimization estimates the company option value of keeping open the choice between nuclear and gas technologies. The merchant option value decreases sharply as the correlation between electricity, gas, and carbon prices rises, casting doubt on whether merchant investors have adequate incentives to choose socially efficient diversification in liberalized electricity markets.

Merchant Interconnectors in the European Electricity System

This paper considers the potential for merchant investment in interconnection in the European electricity system. As transmission is in Europe in principle a regulated business, it is analysed here under what conditions merchant interconnectors could be allowed. First, the general role of interconnectors in the process of the integration of the European electricity market is considered. Second, it is discussed why merchant interconnectors could be a valuable complement to regulated interconnectors. Third, the general European regulatory framework for transmission is given. Fourth, the economics of merchant interconnectors are considered and the consequences for the regime merchant investors wish to obtain. Fifth, an extensive overview is given of the special legal regime that can be granted to merchant interconnectors in Europe. Sixth, the decisions concerning the Estlink merchant interconnector are analysed. This interconnector between Estonia and Finland is the only example in which a special regime for a merchant interconnector for electricity has been granted to date. Seventh, the special regime for merchant interconnectors is analysed. Finally, it is concluded what the potential is for merchant interconnectors in the European electricity industry.

MERCHANT TRANSMISSION INVESTMENT*

We examine the performance attributes of a merchant transmission investment framework that relies on ‘market driven’ investment to increase transmission network capacity needed to support competitive wholesale markets for electricity. Under a stringent set of assumptions, the merchant investment model has a remarkable set of attributes that appears to solve the natural monopoly problem and the associated need for regulating electric transmission companies. We expand the merchant model to incorporate several attributes of wholesale power markets and transmission networks that the merchant model ignores. These include market power in wholesale electricity markets, lumpiness in transmission investment opportunities, stochastic attributes of transmission networks and associated property rights definition issues, strategic behavior by potential merchant transmission investors and issues related to the coordination of transmission system operators and merchant transmission owners. Incorporating these more realistic attributes of transmission networks and the behavior of transmission owners and system operators leads to the conclusion that several potentially significant inefficiencies may result from reliance on the merchant transmission investment framework. Accordingly, it is inappropriate for policymakers to assume that they can avoid dealing with the many challenges associated with stimulating efficient levels of investment in electric transmission networks by adopting the merchant model.

Electricity transmission: An overview of the current debate

Electricity transmission has emerged as critical for successfully liberalising power markets. This paper surveys the issues currently under discussion and provides a framework for the remaining papers in this issue. We conclude that signalling the efficient location of generation investment might require even a competitive LMP system to be complemented with deep connection charges. Although a Europe-wide LMP system is desirable, it appears politically problematic, so an integrated system of market coupling, possibly evolving by voluntary participation, should have high priority. Merchant investors may be able to increase interconnector capacity, although this is not unproblematic and raises new regulatory issues. A key issue that needs further research is how to better incentivise TSOs, especially with respect to cross-border issues.

Regulatory issues in merchant transmission investment

Merchant investment in electricity transmission networks (MTI) is now legally allowed. Predominantly driven by the fear of underinvestment, regulators examine this possibility and given that MTI is a possibility, the regulators face a new set of questions. This paper raises and examines regulatory questions especially from a European institutional framework. The regulatory issues concern the competition effect, the ownership, access regime and the must-offer provision. The paper argues to leave light-handed unregulated MTI light handed and refrain from additional measures. In most cases, it is justified to refrain from sector-specific arrangements because competition law, if necessary at all, will suffice. However, details matter.

Utilizing MATPOWER in Optimal Power Flow

This thesis analyzes transmission pricing, transmission congestion risks and their associated hedging instruments as well as mechanisms for stimulating investments in transmission expansion. An example of risk management in the case of a hydropower producer is included.After liberalization and restructuring of electricity markets, risk management has become important. In particular the thesis analyzes risks due to transmission congestion both in the short- and long-term (investments) for market players such as generators, loads, traders, independent system operators and merchant investors. The work is focused on the northeastern United States electricity markets and the Nordic electricity markets.The first part of the thesis reviews the literature related to the eight research papers in the thesis. This describes the risks that are relevant for an electricity market player and how these can be managed. Next, the basic ingredients of a competitive electricity market are described including the design of the system operator. The transmission pricing method is decisive for hedging against transmission congestion risks and there is an overview of transmission pricing models considering their similarities and differences. Depending on the transmission pricing method used, locational or area (zonal) pricing, the electricity market players can use financial transmission rights or Contracts for Differences, respectively. In the long-term it is important to create mechanisms for investments in transmission expansion and the thesis describes one possible approach and its potential problems.The second part comprises eight research papers. It presents empirical analyses of existing markets for transmission congestion derivatives, theoretical analyses of transmission congestion derivatives, modeling of merchant long-term financial transmission rights, theoretical analysis of the risks of the independent system operator in providing financial transmission rights, an analysis of inefficiencies associated with ignoring losses when utilizing area (zonal) pricing, and an application of an integrated risk management model on the power system of Norway’s second largest hydropower producer.The most important research findings include the following issues. First, Contracts for Differences in the Nordic market appear to be over-priced. Second, a merchant long-term financial transmission rights model is possible to realize in mathematical and economic terms. Third, by including the proceeds from a financial transmission right auction the independent system operator can issue a higher volume of rights because there is a relationship between the congestion rent, the proceeds from the auction and the payments to the financial transmission rights holders. Fourth, ignoring losses in the Norwegian area pricing, can lead to inefficiencies. Next, an integrated risk management model is applicable on large-scale power systems. Then, an overview is presented of different contractual arrangements that can be used to hedge transmission congestion risks. Finally, empirical data from existing financial transmission rights markets demonstrate how these markets work.

Gentry and Bourgeois: Patterns of Merchant Investment in Baltimore County, Maryland, 1658 to 1776

Gentry and Bourgeois: Patterns of Merchant Investment in Baltimore County, Maryland, 1658 to 1776

The Tobacco Lords: A Study of the Tobacco Merchants of Glasgow and Their Trading Activities, c. 1740-1790

Part 1 The nature of the Glasgow merchant community: the tobacco merchants of Glasgow merchant investments - land merchant investments - industry. Part 2 Trading methods and organization in the Glasgow tobacco trade: the organization of the Glasgow tobacco trade c 1740-90 the emergence of the tobacco companies the tobacco farm in Virginia, William Cunninghame and Company, 1768-75 sources of capital for the Glasgow tobacco trade. Part 3 Glasgow tobacco merchants and the American war of independence: merchant reaction to the American war the opportunities of trade during the American war the difficulties of trade during the American war. Part 4 The aftermath of the American war of independence: the problem of Glasgow's pre-war debts the renewal of trade with North America after 1783.

Enterprise and Empire: Merchant and Gentry Investment in the Expansion of England, 1575-1630. Theodore K. Rabb

Enterprise and Empire: Merchant and Gentry Investment in the Expansion of England, 1575-1630. Theodore K. Rabb

Enterprise & Empire: Merchant and Gentry Investment in the Expansion of England, 1575-1630.

Enterprise & Empire: Merchant and Gentry Investment in the Expansion of England, 1575-1630.

Enterprise & Empire: Merchant and Gentry Investment in the Expansion of England, 1575-1630

Enterprise & Empire: Merchant and Gentry Investment in the Expansion of England, 1575-1630

Enterprise & Empire: Merchant and Gentry Investment in the Expansion of England, 1575-1630

Enterprise & Empire: Merchant and Gentry Investment in the Expansion of England, 1575-1630

Enterprise & Empire: Merchant and Gentry Investment in the Expansion of England 1575-1630

Enterprise & Empire: Merchant and Gentry Investment in the Expansion of England 1575-1630

New Light on London Merchant Investments in St. Domingue

New Light on London Merchant Investments in St. Domingue