Optimal transmission regulation of an integrated energy market

The capacity of the transmission network determines the extent of integration of a multi-national energy market. Cross-border externalities render coordination of network maintenance and investments across countries valuable. Is it then optimal for a single regulator to collect power? Should a common system operator manage the entire network? I show that optimal network structure depends on (i) how the common regulator would balance the interests of the different member states; (ii) how the gains from market integration vary across countries; (iii) network characteristics (substitutability versus complementarities); and (iv) the social cost of operator rent.