Regulated cross-border transmission investment in Europe

In a liberalized market, generation and transmission investment decisions are decoupled, so that a more elaborated ID grid is necessary. The European transmission grid has to ensure security of supply, facilitate the market and integrate renewables. Transmission grid investments are clearly needed, especially to increase the scarcely available cross-border transfer capacities. The regulatory framework in which these investments have to take place is discussed in this paper. It is stated that this framework does not ensure that congestion revenues are used for transmission investments that are in the long-term benefit of the market, because regulators are biased towards a short-term tariff reduction. The authors conclude that more coordination is clearly necessary, either pushed by European regulation or driven by coordinated regulatory actions. Copyright (c) 2006 John Wiley & Sons, Ltd.