Transmission constraints and strategic underinvestment in electric power generation

This article is the first to examine electric power producers' investment decisions when com- petition is imperfect and the transmission grid congested. This analysis yields numerous original insights. First, congestion on the grid is transient, and may disappear when demand is highest. Second, transmission capacity increases have complex impacts on generation: they may increase, decrease, or have no impact on the marginal value of generation, and may have similar or opposite impacts on the marginal value of di¤erent technologies. Third, the true social value of transmission, including its impact on investment, may be significantly lower than is commonly assumed.