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Development Scenarios for the North and Baltic Sea Grid: A Welfare Economic Analysis

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  • Jonas Egerer
  • Friedrich Kunz
  • Christian von Hirschhausen

Abstract

The North and Baltic Sea Grid is one of the largest pan-European infrastructure projects raising high hopes regarding the potential of harnessing large amounts of renewable electricity, but also concerns about the implementation in largely nationally dominated regulatory regimes. The paper develops three idealtype development scenarios and quantifies the technical-economic effects: i) the Status quo in which engagement in the North and Baltic Sea is largely nationally driven; ii) a Trade scenario dominated by bilateral contracts and point-to-point connections; and iii) a Meshed scenario of fully interconnected cables both in the North Sea and the Baltic Sea, 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 of such a scheme, e.g. the incumbent electricity generators in France, Germany, and Poland, and 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 much of the investment will have to be regulated to come about. We also find strong interdependencies between offshore grid expansion and the subsequent onshore network.

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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1261.

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Length: 22 p.
Date of creation: 2012
Date of revision:
Handle: RePEc:diw:diwwpp:dp1261

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Keywords: Electricity; offshore transmission; rent allocation;

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References

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  1. Florian Leuthold & Hannes Weigt & Christian Hirschhausen, 2012. "A Large-Scale Spatial Optimization Model of the European Electricity Market," Networks and Spatial Economics, Springer, Springer, vol. 12(1), pages 75-107, March.
  2. Brunekreeft, G. & Neuhoff, K. & Newbery, D., 2004. "Electricity transmission: an overview of the current debate," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0463, Faculty of Economics, University of Cambridge.
  3. Nardi, Paolo, 2012. "Transmission network unbundling and grid investments: Evidence from the UCTE countries," Utilities Policy, Elsevier, Elsevier, vol. 23(C), pages 50-58.
  4. Malaguzzi Valeri, Laura, 2009. "Welfare and competition effects of electricity interconnection between Ireland and Great Britain," Energy Policy, Elsevier, Elsevier, vol. 37(11), pages 4679-4688, November.
  5. Parail, V., 2010. "Properties of Electricity Prices and the Drivers of Interconnector Revenue," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 1059, Faculty of Economics, University of Cambridge.
  6. Turvey, Ralph, 2006. "Interconnector economics," Energy Policy, Elsevier, Elsevier, vol. 34(13), pages 1457-1472, September.
  7. Brunekreeft, Gert, 2005. "Regulatory issues in merchant transmission investment," Utilities Policy, Elsevier, Elsevier, vol. 13(2), pages 175-186, June.
  8. Doorman, Gerard L. & Frøystad, Dag Martin, 2013. "The economic impacts of a submarine HVDC interconnection between Norway and Great Britain," Energy Policy, Elsevier, Elsevier, vol. 60(C), pages 334-344.
  9. de Nooij, Michiel, 2011. "Social cost-benefit analysis of electricity interconnector investment: A critical appraisal," Energy Policy, Elsevier, Elsevier, vol. 39(6), pages 3096-3105, 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.
  2. Clemens Gerbaulet & Alexander Weber, 2014. "Is There Still a Case for Merchant Interconnectors?: Insights from an Analysis of Welfare and Distributional Aspects of Options for Network Expansion in the Baltic Sea Region," Discussion Papers of DIW Berlin 1404, DIW Berlin, German Institute for Economic Research.

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