Merchant investment in electricity transmission networks

Many electricity economists have long hoped that it might be possible to establish competition, not just in providing generation and load assets, but also in the provision of the transmission network itself. Attempts in the 1990s to achieve so-called merchant transmission investment using conventional Financial Transmission Rights (FTRs) proved disappointing. We develop an extension of screening-curve models to include the optimal choice of both generation and transmission. Such models, although stylised, provide valuable insight into the long-run co-optimisation of generation and transmission. We propose new regulatory and merchant transmission investment mechanisms that achieve the socially optimal investment.