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Networks and Spatial Economics

, Volume 15, Issue 1, pp 149–181 | Cite as

Removing Cross-Border Capacity Bottlenecks in the European Natural Gas Market—A Proposed Merchant-Regulatory Mechanism

  • Anne Neumann
  • Juan Rosellón
  • Hannes Weigt
Article

Abstract

We propose a merchant-regulatory framework to promote investment in the European natural gas network infrastructure based on a price cap over two-part tariffs. As suggested by Vogelsang (J Regul Econ 20:141–165, 2001) and Hogan et al. (J Regul Econ 38:113–143, 2010), a profit maximizing network operator facing this regulatory constraint will intertemporally rebalance the variable and fixed part of its two-part tariff so as to expand the congested pipelines, and converge to the Ramsey-Boiteaux equilibrium. We confirm this with actual data from the European natural gas market by comparing the bi-level price-cap model with different reference cases. We analyze the performance of the regulatory approach under different market scenarios, and identify relevant aspects that need to be addressed if the approach were to be implemented.

Keywords

Regulation Natural gas network Investment Europe 

Notes

Acknowledgments

Hannes Weigt acknowledges support from the Robert Schuman Centre for Advanced Studies at the European University Institute as the research reported in this paper was partly carried out while he was a Jean Monnet Fellow at the Florence School of Regulation. Juan Rosellón acknowledges support from a Marie Curie International Incoming Fellowship within the 7th European Community Framework Programme, as well as from Conacyt (p. 131175).

Supplementary material

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Department of Economics and Business, Universität Potsdam and German Institute for Economic Research, (DIW Berlin)Universität PotsdamPotsdamGermany
  2. 2.Centro de Investigación y Docencia Económicas (CIDE) and German Institute for Economic Research (DIW Berlin). CIDE, Department of EconomicsMéxicoMéxico
  3. 3.Department of Energy, Transportation, EnvironmentDIW BerlinBerlinGermany
  4. 4.Forschungsstelle Nachhaltige Energie- und Wasserversorgung, Wirtschaftswissenschaftliche Fakultät der Universität BaselBaselSwitzerland

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