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Development scenarios for the North and Baltic Seas Grid – A welfare economic analysis

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  • Egerer, Jonas
  • Kunz, Friedrich
  • Hirschhausen, Christian von

Abstract

The North and Baltic Seas Grid is one of the largest pan-European infrastructure projects, increasing the potential of harnessing large amounts of renewable energy. This paper addresses the economic implications of different development scenarios of the North and Baltic Seas Grid on individual countries and stakeholders which may raise concerns about the implementation in largely nationally dominated regulatory regimes. The paper develops three scenarios and quantifies the technical-economic effects: i) the status quo, in which engagement in the North and Baltic Seas is largely nationally driven; ii) a trade scenario dominated by bilateral contracts and point-to-point connections; and iii) a meshed network scenario of fully interconnected cables crossing both the North Sea and the Baltic Seas making a truly pan-European infrastructure. We find that in terms of overall welfare, the meshed solution is superior; however, from a distributional perspective there are losers in such a scheme, namely the incumbent electricity generating firms in France, Germany, and Poland, as well as the consumers in low-price countries, e.g. Norway and Sweden. Merchant transmission financing, based on congestion rents only, does not seem to be a sustainable option to provide sufficient network capacities, and authorities will need to mandate the investment in order for it to be made. We also find strong interdependencies between offshore grid expansion and the subsequent onshore network.

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Bibliographic Info

Article provided by Elsevier in its journal Utilities Policy.

Volume (Year): 27 (2013)
Issue (Month): C ()
Pages: 123-134

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Handle: RePEc:eee:juipol:v:27:y:2013:i:c:p:123-134

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Web page: http://www.elsevier.com/locate/inca/30478

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Keywords: Electricity; Offshore transmission; Rent allocation;

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References

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  1. Parail, V., 2010. "Properties of Electricity Prices and the Drivers of Interconnector Revenue," Cambridge Working Papers in Economics 1059, Faculty of Economics, University of Cambridge.
  2. Doorman, Gerard L. & Frøystad, Dag Martin, 2013. "The economic impacts of a submarine HVDC interconnection between Norway and Great Britain," Energy Policy, Elsevier, vol. 60(C), pages 334-344.
  3. Florian Leuthold & Hannes Weigt & Christian Hirschhausen, 2012. "A Large-Scale Spatial Optimization Model of the European Electricity Market," Networks and Spatial Economics, Springer, vol. 12(1), pages 75-107, March.
  4. Laura Malaguzzi Valeri, 2008. "Welfare and Competition Effects of Electricity Interconnection between Great Britain and Ireland," Papers WP232, Economic and Social Research Institute (ESRI).
  5. Nardi, Paolo, 2012. "Transmission network unbundling and grid investments: Evidence from the UCTE countries," Utilities Policy, Elsevier, vol. 23(C), pages 50-58.
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  8. Brunekreeft, Gert, 2005. "Regulatory issues in merchant transmission investment," Utilities Policy, Elsevier, vol. 13(2), pages 175-186, June.
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Cited by:
  1. Jonas Egerer & Clemens Gerbaulet & Casimir Lorenz, 2013. "European Electricity Grid Infrastructure Expansion in a 2050 Context," Discussion Papers of DIW Berlin 1299, DIW Berlin, German Institute for Economic Research.

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