Working Paper: NBER ID: w23106
Authors: Nicholas Ryan
Abstract: India, seeking to reduce electricity shortages, set up a new power market, in which transmission constraints sharply limit trade between regions. I use confidential bidding data to estimate the costs of power supply and simulate market outcomes with more transmission capacity. I find that the returns to building transmission hinge on market conduct. Under a competitive model of supply, transmission investments roughly breakeven. Under a strategic model, the same transmission expansion increases market surplus by 19 percent, enough to justify the investment, because low-cost sellers increase supply in response to a more integrated grid.
Keywords: No keywords provided
JEL Codes: O13; L13; L94
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| binding transmission constraints (L91) | market concentration (L11) |
| binding transmission constraints (L91) | elasticity of residual demand (D12) |
| increase market concentration (L12) | incentives for sellers to exercise market power (D43) |
| binding transmission constraints (L91) | market surplus under strategic model (D43) |
| increase transmission capacity (L96) | ability of sellers to compete (L11) |
| increase transmission capacity (L96) | overall market dynamics (D49) |
| transmission constraints (L91) | incentive for generators to withhold power (L94) |