Development Scenarios for the North and Baltic Sea Grid: A Welfare Economic Analysis
AbstractThe 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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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1261.
Length: 22 p.
Date of creation: 2012
Date of revision:
Electricity; offshore transmission; rent allocation;
Other versions of this item:
- Egerer, Jonas & Kunz, Friedrich & Hirschhausen, Christian von, 2013. "Development scenarios for the North and Baltic Seas Grid – A welfare economic analysis," Utilities Policy, Elsevier, Elsevier, vol. 27(C), pages 123-134.
- Jonas Egerer & Friedrich Kunz & Christian von Hirschhausen, 2012. "Development Scenarios for the North and Baltic Sea Grid - A Welfare Economic Analysis," RSCAS Working Papers, European University Institute 2012/69, European University Institute.
- D60 - Microeconomics - - Welfare Economics - - - General
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-07 (All new papers)
- NEP-ENE-2013-01-07 (Energy Economics)
- NEP-EUR-2013-01-07 (Microeconomic European Issues)
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