Choice of Capacity and Wholesale Transactions in an Electric Power Market Using the Third Party Access Method

Author Name KANEMOTO Yoshitsugu  (Faculty Fellow, RIETI)
Creation Date/NO. June 2007 07-J-027
Download / Links


We build a model to analyze the Japanese-style third party access method wherein new entrants can use, for a fee, the power transmission grids of the vertically integrated electric utility companies, and we conduct some simple qualitative analysis on special cases. We draw three principal conclusions. First, in the event that there is a deviation between the access fee and the marginal cost of transmission services, distortion occurs in the supply of electric power by the utilities. In the event that the access fee is higher than the marginal cost of transmission, utilities reduce their electricity supply, and when the access fee is lower, they tend to take action to increase their supply. Second, in the event of a decline in brand value or a negative effect on ancillary business activities occurs, even to a minor degree, as a result of a decline in utilities' own customers, the utilities do not supply electricity in the wholesale market, fearing that it would lead to an increase in the number of customers for other companies. Third, utilities might carry excess generation capacity to block new entry of competitors.