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Determining Optimal Interconnection Capacity on the Basis of Hourly Demand and Supply Functions of Electricity

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  • Jan Horst Keppler
  • William Meunier

Abstract

Interconnections for cross-border electricity trade improve price convergence and welfare. Increased production from variable renewables however implies higher levels of optimal interconnection capacity than in the past. Rather than using scenario building to determine new optimal levels of interconnection capacity, this paper presents a new methodology for Cost-Benefit Analysis (CBA) based on empirical market data, using the French-German electricity trade as an example. Employing a very fine dataset of hourly supply and demand curves (aggregated auction curves) from the EPEX Spot market, it constructs net export (NEC) and net import demand curves (NIDC) for both countries. This allows assessing hourly welfare impacts for incremental capacity and, summed over the year, the annual welfare benefits for each discrete increase in interconnection capacity. Confronting benefits with the annualised costs of increasing interconnection capacity determines the socially optimal increase in interconnection capacity between France and Germany on the basis of empirical market micro-data.

Suggested Citation

  • Jan Horst Keppler & William Meunier, 2018. "Determining Optimal Interconnection Capacity on the Basis of Hourly Demand and Supply Functions of Electricity," The Energy Journal, , vol. 39(3), pages 117-140, May.
    • Handle: RePEc:sae:enejou:v:39:y:2018:i:3:p:117-140
    DOI: 10.5547/01956574.39.3.jkep
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    1. Schaber, Katrin & Steinke, Florian & Hamacher, Thomas, 2012. "Transmission grid extensions for the integration of variable renewable energies in Europe: Who benefits where?," Energy Policy, Elsevier, vol. 43(C), pages 123-135.
    2. repec:aen:journl:ej37-3-keppler is not listed on IDEAS
    3. Spiecker, Stephan & Vogel, Philip & Weber, Christoph, 2013. "Evaluating interconnector investments in the north European electricity system considering fluctuating wind power penetration," Energy Economics, Elsevier, vol. 37(C), pages 114-127.
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    Cited by:

    1. Ciarreta, Aitor & Damoun, Anas & Espinosa, Maria Paz, 2025. "A restructured Moroccan electricity market and its interaction with the Iberian power market," Energy Policy, Elsevier, vol. 206(C).

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    • F0 - International Economics - - General

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