Paradoxes in networks supporting competitive electricity markets

Abstract

Grid investments are normally done in electrical networks in order to achieve a well functioning integrated electricity market and/or making the network more secure, i.e. less sensitive to link failures. In general, there are two aspects to be considered when making a new grid investment, the first is that of detecting beneficial investments, and the second is how to induce them under the chosen market regime. We will show that network "improvements", i.e. strengthening a line or building a new line, may in fact be detrimental to social surplus, and that some agents will have incentives to advocate these changes.