The economic interplay between network and power market

The transmission network and the production plants are both necessary for providing electricity to the consumers. The transmission network is a regulated natural monopoly. The regulations set clear framework conditions for the network activities and affect the incentives to invest. Decision about operations and investments in production and consumption, on the other hand, are made in the market. There is a considerable need for coordination of the activities within network and market in order for the whole to work well. In the short term much of the need for coordination can be taken care of by a sophisticated organization of the power market and via the transmission tariffs, such that the players in the market see price signals which lead them to exploit network and production plants in an optimal way. This is complicated, but theoretically possible. In the long term, measures in the network, production and consumption are alternatives, and in development projects one often has to chose one of the alternatives. So far, no good models exist for guaranteeing the best choice