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Long Term Financial Transportation Rights: An Experiment

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Financial Transmission Rights

Part of the book series: Lecture Notes in Energy ((LNEN,volume 7))

Abstract

One challenge facing operators of network infrastructure, such as gas pipelines and electricity grids, is that large new investments in capacity must be undertaken as overall demand increases. In the European Union alone, roughly 200 Billion Euro must be invested in the energy transport networks (gas and electricity) by 2020 (MEMO/10/582). However, there is a considerable risk that an operator’s estimates of future demand might prove too optimistic, irreversible investments would be undertaken, and some of the capacity would sit idle or underused. On the other hand, failing to expand capacity sufficiently would result in lost profits and lower welfare than under optimal capacity provision.

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Notes

  1. 1.

    Other benefits of forward contracting appear in oligopoly settings (see for example Allaz and Vila 1993 and Holmberg 2011).

  2. 2.

    There is an ongoing debate about whether the scrutiny placed on subjects in the laboratory affects the observed level of socially-oriented behavior in non-market interactions (see Levitt and List 2007). We are not aware of an argument in a similar vein that has been made with regard to market experiments.

  3. 3.

    Dynamic efficiency in a particular period can exceed 100 % if a network operator overinvests compared to the social planner, who maximizes the sum of welfare over all 30 periods.

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Author information

Authors and Affiliations

  1. Tilec & CentER, Department of Economics, Tilburg University, 90153, 5000 LE, Tilburg, The Netherlands

    Bastian Henze & Bert Willems

  2. CentER, Department of Economics, Tilburg University, 90153, 5000 LE, Tilburg, The Netherlands

    Charles N. Noussair

Authors
  1. Bastian Henze
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  2. Charles N. Noussair
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  3. Bert Willems
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Correspondence to Bert Willems .

Editor information

Editors and Affiliations

  1. Económicas (CIDE), Department of Economics, Centro de Investigación y Docencia, Carretera Mexico-Toluca 3655, Mexico, 06400, Mexico

    Juan Rosellón

  2. Åsegårdsvegen 65, Ålesund, 6017, Norway

    Tarjei Kristiansen

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Henze, B., Noussair, C.N., Willems, B. (2013). Long Term Financial Transportation Rights: An Experiment. In: Rosellón, J., Kristiansen, T. (eds) Financial Transmission Rights. Lecture Notes in Energy, vol 7. Springer, London. https://doi.org/10.1007/978-1-4471-4787-9_8

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  • DOI: https://doi.org/10.1007/978-1-4471-4787-9_8

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  • Publisher Name: Springer, London

  • Print ISBN: 978-1-4471-4786-2

  • Online ISBN: 978-1-4471-4787-9

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