Overview of investments in electricity assets

This current report gives a brief overview of the literature on investments in electricity markets and the focus is particularly on the interplay between investments in transmission and generation. In order for a system operator to secure an efficient electricity market, this entity must assess how generation and demand will evolve in the future. This may be a difficult task. First, there are many alternatives available potentially solving the problems at hand. Second, most countries aim at introducing a certain level of renewable electricity production capacity. Accordingly, the supply-side will most likely be altered and a new generation mix will evolve as renewable technologies are put in place. Third, the problem is clearly dynamic in nature. A large investment in transmission affects the decision to invest in generation and vice versa. Thus, in order to assess the future demand for transmission services, one must assess the regional demand and generation patterns. At the same time, the choices of transmission investments undertaken by the system operator will most likely play a role when entities determine the optimal location of generation or load. The above-mentioned issues are discussed in the report, with an eye on the Norwegian context where the system operator owns the transmission grid.