Though cost reflective storage tariffs may be effective in controlling market power they are suboptimalboth with respect to the allocation of existing storage capacity and to investment incentives. Regulatd tariffs may be coupled with inefficient rationing procedures that allocate scarce storage independently of their value for gas sellers. Such a value is heterogeneous because it depends on the availability of storage substitutes whose distribution is asymmetric among gas sellers and typically gives an advantage to incumbents and to dual-fuel operators. A market nechanism based on a storage auction would be a a better rationing tool in order to assign capacity according to the willingness to pay for it and improve the efficiency of storage allocation. Moreover the auction is supposed to assign scarcity rents to storage operators and can then work as incentive to invest in new storage capacity.
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