Universität zu Köln

Cam, Eren and Lencz, Dominic (2021). Pricing short-term gas transmission capacity: A theoretical approach to understand the diverse effects of the multiplier system. Energy Econ., 95. AMSTERDAM: ELSEVIER. ISSN 1873-6181

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Abstract

In the European Union's (EU) gas transmission system, transporting gas requires the booking of transmission capacities. For this purpose, long-term and short-term capacity products are offered. Short-term capacities are priced by multiplying long-term capacity tariffs with factors called multipliers, making them comparably more expensive. As such, the level of multipliers directly affects how capacity is booked and may significantly impact infrastructure utilisation and welfare-an issue that has not received attention in the literature so far. Using a theoretical approach, we show that multipliers equal to 1 minimise costs and maximise welfare. In contrast, higher multipliers are associated with decreasing welfare. Yet, policymakers may favour higher multipliers, as we find that multipliers greater than 1 but sufficiently low can maximise consumer surplus by leading to reduced hub prices and lower regional price spreads on average. These findings are expected to hold for the large majority of the EU countries. Nevertheless, we also identify situations in which capacity demand can become inelastic depending on the proportion of multipliers with respect to the relative cost of transmission versus storage. In such cases, varying multipliers are found to have no effect on infrastructure utilisation, prices and welfare. (c) 2021 Elsevier B.V. All rights reserved.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Cam, Eren UNSPECIFIED UNSPECIFIED UNSPECIFIED Lencz, Dominic UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-561731
DOI:	10.1016/j.eneco.2020.105095
Journal or Publication Title:	Energy Econ.
Volume:	95
Date:	2021
Publisher:	ELSEVIER
Place of Publication:	AMSTERDAM
ISSN:	1873-6181
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language Economics Multiple languages
URI:	http://kups.ub.uni-koeln.de/id/eprint/56173