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A Mechanism for Allocating Benefits and Costs from Transmission Interconnections under Cooperation: A Case Study of the North Sea Offshore Grid

Author

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  • Martin Kristiansen
  • Francisco D. Muñoz
  • Shmuel Oren
  • Magnus KorpÃ¥s

Abstract

We propose a generic mechanism for allocating the benefits and costs that result from the development of international transmission interconnections under a cooperative agreement. The mechanism is based on a planning model that considers generation investments as a response to transmission developments, and the Shapley Value from cooperative game theory. This method provides a unique allocation of benefits and costs considering each country’s average incremental contribution to the cooperative agreement. The allocation satisfies an axiomatic definition of fairness. We demonstrate our results for three planned transmission interconnections in the North Sea and show that the proposed mechanism can be used as a basis for defining a set of Power Purchase Agreements among countries.

Suggested Citation

  • Martin Kristiansen & Francisco D. Muñoz & Shmuel Oren & Magnus KorpÃ¥s, 2018. "A Mechanism for Allocating Benefits and Costs from Transmission Interconnections under Cooperation: A Case Study of the North Sea Offshore Grid," The Energy Journal, , vol. 39(6), pages 209-234, November.
    • Handle: RePEc:sae:enejou:v:39:y:2018:i:6:p:209-234
    DOI: 10.5547/01956574.39.6.mkri
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    References listed on IDEAS

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    1. Francisco Munoz & Enzo Sauma & Benjamin Hobbs, 2013. "Approximations in power transmission planning: implications for the cost and performance of renewable portfolio standards," Journal of Regulatory Economics, Springer, vol. 43(3), pages 305-338, June.
    2. Munoz, F.D. & Hobbs, B.F. & Watson, J.-P., 2016. "New bounding and decomposition approaches for MILP investment problems: Multi-area transmission and generation planning under policy constraints," European Journal of Operational Research, Elsevier, vol. 248(3), pages 888-898.
    3. Denholm, Paul & Hand, Maureen, 2011. "Grid flexibility and storage required to achieve very high penetration of variable renewable electricity," Energy Policy, Elsevier, vol. 39(3), pages 1817-1830, March.
    4. Francisco Munoz & Jean-Paul Watson, 2015. "A scalable solution framework for stochastic transmission and generation planning problems," Computational Management Science, Springer, vol. 12(4), pages 491-518, October.
    5. Anna Grigoryeva, Mohammad R. Hesamzadeh, and Thomas Tangerås, 2018. "Energy System Transition in the Nordic Market: Challenges for Transmission Regulation and Governance," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    6. Gorenstein Dedecca, João & Lumbreras, Sara & Ramos, Andrés & Hakvoort, Rudi A. & Herder, Paulien M., 2018. "Expansion planning of the North Sea offshore grid: Simulation of integrated governance constraints," Energy Economics, Elsevier, vol. 72(C), pages 376-392.
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    Cited by:

    1. Petitet, Marie & Ricaud, Benjamin & Felder, Frank A. & Elshurafa, Amro M., 2025. "Cross-border electricity trading in the GCC countries, Egypt, Jordan and Iraq: Hourly market coupling or bilateral agreements?," Energy, Elsevier, vol. 327(C).
    2. van Beesten, E. Ruben & Ådnanes, Ole Kristian & Linde, Håkon Morken & Pisciella, Paolo & Tomasgard, Asgeir, 2025. "Welfare compensation in international transmission expansion planning under uncertainty," Energy, Elsevier, vol. 332(C).
    3. Lüth, Alexandra & Keles, Dogan, 2024. "Risks, strategies, and benefits of offshore energy hubs: A literature-based survey," Renewable and Sustainable Energy Reviews, Elsevier, vol. 203(C).
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    5. Hassanzadeh Moghimi, Farzad & Boomsma, Trine K. & Siddiqui, Afzal S., 2024. "Transmission planning in an imperfectly competitive power sector with environmental externalities," Energy Economics, Elsevier, vol. 134(C).
    6. Badesa, Luis & Matamala, Carlos & Strbac, Goran, 2025. "Who should pay for frequency-containment ancillary services? Making responsible units bear the cost to shape investment in generation and loads," Energy Policy, Elsevier, vol. 196(C).

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