Appraising new opportunities for market-based transmission in Europe

The increase in bulk energy transactions, which stems from the gradual opening of a common electricity market in Europe, clearly shows that in several points across the continent there is the need to increment the transmission capacity in order to reduce congestion. Indeed, this is a key factor for a successful development of the market, as it affects the capability of freely exchanging energy between countries and represents in itself an interesting source of revenues for attracting potential investors and new market operators. In this sense, the paper outlines the main features and critical points of a market-based model for transmission and describes the present day situation in Europe regarding the existence of bottlenecks in transmission. Finally, a more in-depth study is performed for Italy, the most congested interconnection throughout Europe, for which a medium-term transfer capacity assessment and an estimation of the net present value (NPV) for merchant transmission projects are calculated.