From the EU Energy Policy Blog, Thomas-Olivier Léautier contemplates the factors that contribute to efficient investment and management of transmission systems:
As power engineers and economists have known for a long-time, the transmission grid is essential to the operation of well-functioning electric power markets. Yet, grid expansion in several regions has been nil or slow. By reviewing the main prescriptions from academic literature and comparing them with case studies from over 16 jurisdictions we find that unless the governance structure is appropriate and specific incentives are provided, grid expansion proves elusive.
After a brief examination of how physical limits and operational practices jointly contribute to transmission capacity, Léautier summarizes the results of theoretical and empirical work he did with Véronique Thelen:
The empirical evidence collected in this study appears consistent with theoretical prescriptions: creation of an independent transmission company subject to strong grid expansion incentives lead to congestion alleviation (e.g., England and Wales).
On the other hand, the Independent System Operator (ISO) model pursued in the United States, where operation but not ownership of the grid is vertically unbundled, does not appear to have performed well. This is consistent with “theoretical” predictions: transmission asset owners in the ISO model face mixed incentives for expansion resulting from limited vertical unbundling of the assets.