Transmission Rights to the Electrical Transmission Grid in the Post Liberalization Era

The electric power industry has been consistently moving away from vertically integrated, centrally regulated system towards a market-based, competitively organized industry. There remain unfulfilled requirements for institutional reform. In this paper, we confront existing and developing congestion management techniques in conjunction with the principal problems of electricity reform. The approaches adopted vary across countries in terms of market and system operation, property rights, and investment incentives. A number of key concepts emerge as central to the organization of the grid, including locational marginal pricing, transmission capacity rights, and compensation for wire ownership. Nonetheless, a set of core, generalizable problems in congestion management with regard to congestion pricing and market power abuse remain. Endowing network operations, contract networks, and financial transmission rights are considered. Contract networks entail the market allocation of long-term capacity rights for transmission. An alternative approach involves endowing a network operator with joint match-making and dispatch responsibilities. This approach involves considerable centralization and network oversight. The indirect implementation of transmission rights has not been proven to remove the chief difficulties. A final and more elaborate market mechanism, namely financial transmission rights, which involves the joint trading of energy and transmission capacity, has been showcased. In this paper, we describe the principal strategic management issues in the electrical transmission grid. Secondly, we highlight the principal policy options in conjunction with the described strategic management issues. Lastly, we explicate the current situation involving congestion management towards a pan - European power grid. The challenges ahead are discussed.