Abstract

This paper illustrates the essential role of the transmission network in achieving efficient electricity markets. An optimally managed network characterized by an adequate capacity level induces efficiency gains not only as it widens the potential market for the least costly plants, but also as it enlarges the set of competing suppliers for the end users, thereby generating a pro-competitive effect. Combining theoretical models and empirical applications, this paper characterizes the network optimal capacity and defines the properties of its "optimal " management. Finally, it evaluates the compatibility of the current Italian and European legal framework with the goal of efficiency maximization, meanwhile indicating a number of appropriate modifications.