Power plant relocation policy versus investments in transmission network infrastructure: A study on the Italian energy market

Abstract

In a zonal pricing mechanism network congestion arises when the transmission network is not able to serve zones with the necessary electricity which contributes to higher zonal prices. Investing in transmission network infrastructure and establishing a uniform price is considered an efficient solution, especially in Europe. This chapter analyzes the Italian Power Exchange (IPEX) and proposes a framework for evaluating the effects of policy mechanisms. In particular, a comparison between investments in transmission networks and generation capacity relocation policy under a zonal pricing mechanism is discussed. Results point out that a proper localization of a reduced set of power plants is able to increase consumers' social welfare by taking advantage of the zonal splitting mechanism and its transmission capacity constraints, even with respect to classical efficient solutions based on eliminating every energy transmission constraint. © Springer Science+Business Media New York 2013.