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Examoogle • User • info@examoogle.com • EE-2024-8821
Chapter 1 of 12 • Page 1 of 248🔒 Protected PDF • Watermarked
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The interconnected power system is considered natural monopoly in deregulated system to
Reduce the cost of transmission network
Avoid duplicity
Maintain easily
None of the above
Avoid duplicity
Quick Summary: An interconnected power system is classified as a natural monopoly because the cost of infrastructure for transmission and distribution is extremely high, making it economically inefficient to duplicate these networks. In a deregulated market, keeping the transmission grid under a regulated, single-entity structure prevents wasteful capital expenditure and redundant network development.
An interconnected power system is classified as a natural monopoly because the cost of infrastructure for transmission and distribution is extremely high, making it economically inefficient to duplicate these networks. In a deregulated market, keeping the transmission grid under a regulated, single-entity structure prevents wasteful capital expenditure and redundant network development.
ATC=QFixedCost+VariableCost
C(q1+q2)<C(q1)+C(q2) — condition for subadditivity in natural monopoly
The principle relies on 'Economies of Scale.' Because the Average Total Cost (ATC) decreases significantly as output increases (due to high fixed costs and low marginal costs), having multiple competing grids in the same geographical area would lead to high inefficiency. By maintaining a single interconnected grid, the system minimizes resource waste (duplicity) and optimizes technical performance and grid stability.
High barrier to entry due to massive initial capital investment (CapEx).
Economies of scale prevail as the transmission network expands.
Regulated monopoly prevents the 'Tragedy of the Commons' in grid infrastructure.
Competition is encouraged in the generation sector, but infrastructure remains a 'Common Carrier'.
Prevents wasteful duplication of transmission corridors.
Ensures centralized reliability and operational control.
Lower long-run average cost for end-consumers.
Potential for lack of innovation due to lack of competition.
Requires stringent regulatory oversight to prevent excessive pricing.
National Power Grids (e.g., POSOCO/NLDC in India).
Regional transmission utility planning.
Deregulation of wholesale energy markets.
The power grid exhibits 'Subadditivity of Cost Function', meaning one firm can provide service cheaper than two or more.
Option A is partially true regarding costs, but the primary structural reason for the monopoly status is avoiding the inefficiency of asset duplicity.
B is correct — Interconnected power systems are deemed natural monopolies to avoid the technical and economic inefficiencies caused by redundant infrastructure (duplicity).
Always distinguish between 'Generation' (where competition is encouraged) and 'Transmission/Distribution' (which are generally regulated natural monopolies).