Tuesday, June 25, 2019

“The Value of Infrastructure: Evidence from a New Transmission Line Opening in Chile”
Koichiro Ito* (University of Chicago)
Joint with Mar Reguant (Northwestern University) and Luis Gonzales


Investment in transmission infrastructure is important to design efficient electricity markets and accommodate growing renewables. In this paper, we examine the value of such investment in the Chilean electricity market. The two largest electricity systems in Chile—SING (Sistema Interconectado del Norte Grande) and the SIC (Sistema Interconectado Central)—had been fully separated until November 2017, when the first interconnection was opened. Using plant-level hourly generation data, we show that the interconnection increased generation from lower-marginal-cost technologies—mainly solar and wind—in both SING and SIC, and reduced generation from higher-marginal-cost technologies—mainly coal-fired power—in both regions. Based on the market clearing prices at the node level, we find that the interconnection led to immediate full price convergence between the two systems in off-peak hours, but small price differences remained in peak hours. Finally, we explore the potential impacts of the interconnection on market power in the Chilean electricity market.

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