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Using markets and regulatory frameworks to ensure timely investment in transmission

New Technical Brochure reviews how utilities across the world use markets and regulatory frameworks to ensure timely investment in transmission 

Working Group C5.18 has produced Technical Brochure 692, ‘Market price signals and regulatory frameworks for coordination of transmission investments'.  The Australian member on the working group was Joel Gilmore.  This should be of general interest to our members as there is growing concern in Australia about system security balanced against rapidly rising prices, and timely transmission investments play a critical role here.  While some may argue that increasing distributed generation and lower cost storage may reduce the need for transmission, the current evidence is that, while its role and function will evolve over time, transmission will continue to be critical for the foreseeable future.  This changing role does make the timing and nature of the transmission investment more difficult to justify with valid market signals and appropriate regulatory frameworks becoming even more important. 

WG C5.18 – Market Price Signals and Regulatory Frameworks for Coordination of Transmission Investments 

Technical Brochure 692, ‘Market price signals and regulatory frameworks for coordination of transmission investments', notes large investments in electricity transmission networks are needed in many power markets in coming years for various reasons such as integration of new (often intermittent renewable) generation, cross-border market integration, increase of demand, or security of supply improvement.  At the same time, the function of the transmission network is evolving. With the development of small generators, active consumers and prosumers, demand increase may no longer be the main driver of transmission investments. In the future transmission networks will be more and more used as an insurance against local shortages (i.e. periods when local generation would be lower than local demand). Therefore despite a lower use of transmission, the need for transmission capacities may remain the same or even increase. Networks, market organisations and network charging schemes need to be adapted to this new paradigm.  

In this context, deciding where, what and when to invest in transmission infrastructure is becoming increasingly complex. In areas experiencing sluggish demand and uncertain developments, the risk of stranded assets (i.e. assets that do not provide benefits to grid users) is greater than in the past. The achievement of efficient power systems, from operational and planning perspectives, requires effective coordination, both horizontally (coordinating investment between neighbouring grids and between various transmission owners) and vertically (coordinating generation and transmission investments). Such coordination is necessary to deliver innovative, optimal solutions to the society.  To achieve this, three main aspects must be considered: 

  • Transmission organisation models – these define the role of various entities concerning planning and investing in transmission.  It is noted that, for Australia, AEMO and TSOs are involved in the planning but investment is primarily by the transmission owner; 
  • Electricity market and network tariff schemes – these are complementary and can deliver signals on where to invest in generation and transmission.  The role of the Regulatory Investment Test for Transmission in Australia is discussed;
  • Regulatory schemes – these are aimed at fostering or unlocking investments that deliver the most value to society and are twofold:
    • Those addressing horizontal coordination; the relationship between the various TSOs, and sometimes DSOs, in planning the market.  It is noted that in Australia a lot of this coordination is via AEMO.
    • Those dealing with vertical coordination, which is the coordination of generation and transmission investment. 

The Technical Brochure concludes that: 

  • Policies should target investments that provide the maximum benefit to the society, in order to avoid stranded assets.
  • Coordinating different stakeholders requires that all of them share a common vision of the costs and benefits and agree on a cost sharing key.
  • Existing coordination schemes are currently integrated to varying degrees.
  • Transmission investments should be planned in an economic, efficient and coordinated manner.
  • ISO and TSO models both provide innovative and cost-effective solutions, however with different means and various degrees of complexity.
  • Appropriate and complementary signals can be delivered by market organisation and network tariffs.
  • Regulatory consistency must be ensured between neighbouring markets in order to facilitate building of interconnectors.
  • The risk profile of transmission investments must be correctly reflected in the tariff regulation. " 

Members can access the Technical Brochure for free at 

Non members can access the abstract here  and the full brochure can be purchased for € 160  at