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The Competitive Effects of Transmission Infrastructure in the Indian Electricity Market†

The Competitive Effects of Transmission Infrastructure in the Indian Electricity Market† AbstractThe integration of markets may improve efficiency by lowering costs or reducing local market power. India, seeking to reduce electricity shortages, set up a new power market, in which transmission constraints sharply limit trade between regions. During congested hours, measures of market competitiveness fall and firms raise bid prices. I use confidential bidding data to estimate the costs of power supply and simulate market outcomes with more transmission capacity. Counterfactual simulations show that transmission expansion increases market surplus by 22 percent, enough to justify the investment. One-third of this gain is due to sellers’ response to a more integrated grid. (JEL H54, L13, L94, O13, Q41) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

The Competitive Effects of Transmission Infrastructure in the Indian Electricity Market†

The Competitive Effects of Transmission Infrastructure in the Indian Electricity Market†

American Economic Journal: Microeconomics , Volume 13 (2) – May 1, 2021

Abstract

AbstractThe integration of markets may improve efficiency by lowering costs or reducing local market power. India, seeking to reduce electricity shortages, set up a new power market, in which transmission constraints sharply limit trade between regions. During congested hours, measures of market competitiveness fall and firms raise bid prices. I use confidential bidding data to estimate the costs of power supply and simulate market outcomes with more transmission capacity. Counterfactual simulations show that transmission expansion increases market surplus by 22 percent, enough to justify the investment. One-third of this gain is due to sellers’ response to a more integrated grid. (JEL H54, L13, L94, O13, Q41)

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Publisher
American Economic Association
Copyright
Copyright © 2021 © American Economic Association
ISSN
1945-7685
DOI
10.1257/mic.20180191
Publisher site
See Article on Publisher Site

Abstract

AbstractThe integration of markets may improve efficiency by lowering costs or reducing local market power. India, seeking to reduce electricity shortages, set up a new power market, in which transmission constraints sharply limit trade between regions. During congested hours, measures of market competitiveness fall and firms raise bid prices. I use confidential bidding data to estimate the costs of power supply and simulate market outcomes with more transmission capacity. Counterfactual simulations show that transmission expansion increases market surplus by 22 percent, enough to justify the investment. One-third of this gain is due to sellers’ response to a more integrated grid. (JEL H54, L13, L94, O13, Q41)

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: May 1, 2021

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