Type: Working Paper
Removing Cross-Border Capacity Bottlenecks in the European Natural Gas Market – A Proposed Merchant-Regulatory Mechanism
Working Paper, DIW Berlin Discussion Paper, 2011/1145, [Florence School of Regulation], [Gas]
NEUMANN, Anne, ROSELLÓN, Juan, WEIGT, Hannes, Removing Cross-Border Capacity Bottlenecks in the European Natural Gas Market – A Proposed Merchant-Regulatory Mechanism, DIW Berlin Discussion Paper, 2011/1145, [Florence School of Regulation], [Gas] - https://hdl.handle.net/1814/20103
Retrieved from Cadmus, EUI Research Repository
We propose a merchant-regulatory framework to promote investment in the European natural gas network infrastructure based on a price cap over two-part tariffs. As suggested by Vogelsang (2001) and Hogan et al. (2010), a profit maximizing network operator facing this regulatory constraint will intertemporally rebalance the variable and fixed part of its two-part tariff so as to expand the congested pipelines, and converge to the Ramsey-Boiteaux equilibrium. We confirm this with actual data from the European natural gas market by comparing the bi-level price-cap model with a base case, a no-regulation case, and a welfare benchmark case, and by performing sensitivity analyses. In all cases, the incentive model is the best decentralized regulatory alternative that efficiently develops the European pipeline system.
This publication is based on research carried out in the frame work of the Florence School of Regulation of the Robert Schuman Centre for Advanced Studies, European University Institute.
Cadmus permanent link: https://hdl.handle.net/1814/20103
Full-text via DOI: 10.2139/ssrn.1898562
Series/Number: DIW Berlin Discussion Paper; 2011/1145; [Florence School of Regulation]; [Gas]
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