Transmission investment in competitive power systems : decentralizing decisions in Argentina

54115 Note No. 192 September 1999 Transmission Investment in Competitive Power Systems Decentralizing decisions in Argentina Manuel Angel Abdala and Recent power outages in Argentina are largely the result of transmission problems that could be Andres solved by more investment. Private concessionaires now operate the main and regional Chambouleyron networks, but they are under no obligation to expand capacity. In a decentralized electricity market such as Argentina's the key to a successful transmission investment policy is coordination among the parties involved. Without coordination, an investment project in one site might affect or even disrupt power flow in another. But user coalitions are difficult to set up because of high transaction costs (mainly informational) and, in the Argentine system, because investment mechanisms do not provide a clear allocation of property rights to private investors. Investment decisionmaking for capacity expansion is centralized, but prolonged congestion indicates that the process is not working efficiently. Argentina is searching for a decentralized solution. This Note outlines the options for its high-voltage network and proposes a solution for the regional grids. The unbundling and privatization of Argentina's The design of a regulatory framework for trans- power sector in 1992 has been a success. Six mission is challenging. Transmission is an essen- years after the reform wholesale prices had been tial facility and whoever controls it can exercise more than halved (from about US$50 per a lot of market power. Reliability is key to the megawatt-hour) and output had increased by 52 operating efficiency of a transmission network.1 percent. Retail prices have also fallen, and service Regulation of transmission must induce optimal quality has improved. Transmission has shown management of existing assets and optimal explosive growth: medium- and high-voltage investments in generation and transmission. In lines increased 42 percent in length in 1991