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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.

Suggested Citation

  • Egerer, Jonas & Kunz, Friedrich & Hirschhausen, Christian von, 2013. "Development scenarios for the North and Baltic Seas Grid – A welfare economic analysis," Utilities Policy, Elsevier, vol. 27(C), pages 123-134.
  • Handle: RePEc:eee:juipol:v:27:y:2013:i:c:p:123-134 DOI: 10.1016/j.jup.2013.10.002
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Huppmann, Daniel & Egerer, Jonas, 2015. "National-strategic investment in European power transmission capacity," European Journal of Operational Research, Elsevier, vol. 247(1), pages 191-203.
    3. Jonas Egerer, 2016. "Open Source Electricity Model for Germany (ELMOD-DE)," Data Documentation 83, DIW Berlin, German Institute for Economic Research.
    4. Valeria Di Cosmo & Sean Collins & Paul Deane, 2017. "The Effect of Increased Transmission and Storage in an Interconnected Europe: an Application to France and Ireland," Working Papers 2017.37, Fondazione Eni Enrico Mattei.
    5. Gorenstein Dedecca, João & Hakvoort, Rudi A., 2016. "A review of the North Seas offshore grid modeling: Current and future research," Renewable and Sustainable Energy Reviews, Elsevier, vol. 60(C), pages 129-143.
    6. 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.
    7. Rintamäki, Tuomas & Siddiqui, Afzal S. & Salo, Ahti, 2017. "Does renewable energy generation decrease the volatility of electricity prices? An analysis of Denmark and Germany," Energy Economics, Elsevier, vol. 62(C), pages 270-282.

    More about this item

    Keywords

    Electricity; Offshore transmission; Rent allocation;

    JEL classification:

    • 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

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