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

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

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30478

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  1. 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.
  2. Turvey, Ralph, 2006. "Interconnector economics," Energy Policy, Elsevier, vol. 34(13), pages 1457-1472, September.
  3. 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.
  4. 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.
  5. Brunekreeft, Gert, 2005. "Regulatory issues in merchant transmission investment," Utilities Policy, Elsevier, vol. 13(2), pages 175-186, June.
  6. Nardi, Paolo, 2012. "Transmission network unbundling and grid investments: Evidence from the UCTE countries," Utilities Policy, Elsevier, vol. 23(C), pages 50-58.
  7. de Nooij, Michiel, 2011. "Social cost-benefit analysis of electricity interconnector investment: A critical appraisal," Energy Policy, Elsevier, vol. 39(6), pages 3096-3105, June.
  8. 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.
  9. 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.
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