Market versus planning approaches to transmission and distribution investment

Abstract

Liberalization of the power sector beyond markets for generation and retail supply has been pursued in transmission of electricity and is being pursued in its distribution. The successful mix of markets versus transmission and distribution planning depends on the physical characteristics of electric power systems, the design of the wholesale market, whether retail supply is permitted, the policy objectives of industry reforms, and the extent to which policymakers engage in strategic behavior. In this chapter, various market and planning approaches to transmission and distribution are discussed along with their efficiency, political and practical implications. Stated motivations for these pursuits are wide ranging and include lowering prices, increasing economic efficiency, enhancing reliability and resiliency, reducing environmental impacts, furthering economic development, and improving equity. Part of the impetus for extending liberalization, ironically, may be political by enabling state policymakers and regulators to engage in strategic regulatory behavior, which are policies pursued for political gain that undercut the markets and associated competition.