Advanced Search
MyIDEAS: Login

Social cost-benefit analysis of electricity interconnector investment: A critical appraisal

Contents:

Author Info

  • de Nooij, Michiel

Abstract

This paper examines the economic analysis (social cost-benefit analysis) underlying two decisions to build an interconnector (NorNed and the East-West interconnector) in Europe. The main conclusion is that current interconnector and transmission investment decisions in Europe are unlikely to maximize social welfare. The arguments are as follows. (i) It is unclear how much demand for transmission capacity and interconnectors actually exists, and thus the benefits of investment are unclear. (ii) Both analyses underlying the investments studied are incorrect, to the point where, in one case, even the sign may be wrong. (iii) The main criticism concerns the fact that they do not take the resulting changes in generator investment plans into account and ignore the (potential) benefits of increased competition. (iv) Several smaller issues can be improved, such as the discount rate used. (v) Decisions at the European level are taken very differently, and approval may depend on which authority grants approval. (vi) Interconnector decisions receive the most attention, although most money goes to transmission investments. Two research recommendations for future improvements are formulated.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/pii/S0301421511001418
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 39 (2011)
Issue (Month): 6 (June)
Pages: 3096-3105

as in new window
Handle: RePEc:eee:enepol:v:39:y:2011:i:6:p:3096-3105

Contact details of provider:
Web page: http://www.elsevier.com/locate/enpol

Related research

Keywords: Project evaluation Infrastructures Interconnector;

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Leautier, Thomas-Olivier, 2001. "Transmission Constraints and Imperfect Markets for Power," Journal of Regulatory Economics, Springer, vol. 19(1), pages 27-54, January.
  2. Severin Borenstein & James. Bushnell & Steven Stoft, 2000. "The Competitive Effects of Transmission Capacity in A Deregulated Electricity Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 294-325, Summer.
  3. de Nooij, Michiel & Baarsma, Barbara, 2009. "Divorce comes at a price: An ex ante welfare analysis of ownership unbundling of the distribution and commercial companies in the Dutch energy sector," Energy Policy, Elsevier, vol. 37(12), pages 5449-5458, December.
  4. White, David & Roschelle, Amy & Peterson, Paul & Schlissel, David & Biewald, Bruce & Steinhurst, William, 2003. "The 2003 Blackout: Solutions that Won't Cost a Fortune," The Electricity Journal, Elsevier, vol. 16(9), pages 43-53, November.
  5. Keller, Katja & Wild, Jorg, 2004. "Long-term investment in electricity: a trade-off between co-ordination and competition?," Utilities Policy, Elsevier, vol. 12(4), pages 243-251, December.
  6. de Nooij, Michiel & Koopmans, Carl & Bijvoet, Carlijn, 2007. "The value of supply security: The costs of power interruptions: Economic input for damage reduction and investment in networks," Energy Economics, Elsevier, vol. 29(2), pages 277-295, March.
  7. Joskow, Paul L., 2004. "Transmission Policy In The United States," Working paper 110, Regulation2point0.
  8. Joskow, P.L., 2005. "Patterns of Transmission Investment," Cambridge Working Papers in Economics 0527, Faculty of Economics, University of Cambridge.
  9. Enzo Sauma & Shmuel Oren, 2006. "Proactive planning and valuation of transmission investments in restructured electricity markets," Journal of Regulatory Economics, Springer, vol. 30(3), pages 261-290, November.
  10. Enzo Sauma & Shmuel Oren, 2006. "Proactive planning and valuation of transmission investments in restructured electricity markets," Journal of Regulatory Economics, Springer, vol. 30(3), pages 358-387, November.
  11. Paul L. Joskow, 1997. "Restructuring, Competition and Regulatory Reform in the U.S. Electricity Sector," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 119-138, Summer.
  12. Malaguzzi Valeri, Laura, 2009. "Welfare and competition effects of electricity interconnection between Ireland and Great Britain," Energy Policy, Elsevier, vol. 37(11), pages 4679-4688, November.
  13. Hirst, Eric, 2000. "Do We Need More Transmission Capacity?," The Electricity Journal, Elsevier, vol. 13(9), pages 78-89, November.
  14. Littlechild, S., 2004. "Regulated and merchant interconnectors in Australia: SNI and Murraylink revisited," Cambridge Working Papers in Economics 0410, Faculty of Economics, University of Cambridge.
  15. Kristiansen, Tarjei, 2007. "Cross-border transmission capacity allocation mechanisms in South East Europe," Energy Policy, Elsevier, vol. 35(9), pages 4611-4622, September.
  16. Turvey, Ralph, 2006. "Interconnector economics," Energy Policy, Elsevier, vol. 34(13), pages 1457-1472, September.
  17. Derek Bunn & Georg Zachmann, 2010. "Inefficient arbitrage in inter-regional electricity transmission," Journal of Regulatory Economics, Springer, vol. 37(3), pages 243-265, June.
  18. Thomas-Olivier Léautier & Véronique Thelen, 2009. "Optimal expansion of the power transmission grid: why not?," Journal of Regulatory Economics, Springer, vol. 36(2), pages 127-153, October.
  19. Tanaka, Makoto, 2009. "Transmission-constrained oligopoly in the Japanese electricity market," Energy Economics, Elsevier, vol. 31(5), pages 690-701, September.
  20. Brennan, Timothy J., 2006. "Alleged Transmission Inadequacy: Is Restructuring the Cure or the Cause?," The Electricity Journal, Elsevier, vol. 19(4), pages 42-51, May.
  21. Sanghoon Ahn, 2002. "Competition, Innovation and Productivity Growth: A Review of Theory and Evidence," OECD Economics Department Working Papers 317, OECD Publishing.
  22. Brunekreeft, Gert & Neuhoff, Karsten & Newbery, David, 2005. "Electricity transmission: An overview of the current debate," Utilities Policy, Elsevier, vol. 13(2), pages 73-93, June.
  23. Ojeda, Osvaldo A. & Olsina, Fernando & Garcés, Francisco, 2009. "Simulation of the long-term dynamic of a market-based transmission interconnection," Energy Policy, Elsevier, vol. 37(8), pages 2889-2899, August.
  24. Stigler, George J, 1976. "The Xistence of X-Efficiency," American Economic Review, American Economic Association, vol. 66(1), pages 213-16, March.
  25. Kirschen, Daniel & Strbac, Goran, 2004. "Why Investments Do Not Prevent Blackouts," The Electricity Journal, Elsevier, vol. 17(2), pages 29-36, March.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Rabindra, Nepal & Tooraj, Jamasb, 2013. "Caught Between Theory and Practice: Government, Market, and Regulatory Failure in Electricity Sector Reforms," SIRE Discussion Papers 2013-22, Scottish Institute for Research in Economics (SIRE).
  2. Schroeder, Andreas & Oei, Pao-Yu & Sander, Aram & Hankel, Lisa & Laurisch, Lilian Charlotte, 2013. "The integration of renewable energies into the German transmission grid—A scenario comparison," Energy Policy, Elsevier, vol. 61(C), pages 140-150.
  3. Luis M. Abadie & José M. Chamorro, 2011. "Valuing Expansions of the Electricity Transmission Network under Uncertainty: The Binodal Case," Energies, MDPI, Open Access Journal, vol. 4(10), pages 1696-1727, October.
  4. Jonas Egerer & Friedrich Kunz & Christian von Hirschhausen, 2012. "Development Scenarios for the North and Baltic Sea Grid: A Welfare Economic Analysis," Discussion Papers of DIW Berlin 1261, DIW Berlin, German Institute for Economic Research.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:39:y:2011:i:6:p:3096-3105. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.