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Renewable Energy Zones: Generator Cost Allocation Under Uncertainty

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  • Simshauser, P.
  • Shellshear, E.

Abstract

Renewable Energy Zones (REZ) and the associated transmission network infrastructure are an important policy development in Australia’s transitioning electricity market. REZs form the basis upon which to expand the renewable hosting capacity of the National Electricity Market (NEM) at scale, while simultaneously minimising the footprint of infrastructure – noting community, cultural heritage and environmental (i.e. biodiversity) sensitivities. In the NEM’s Queensland region, REZs are developed outside the regulatory framework as non-regulated or ‘merchant’ assets, with connecting generators paying user charges. Early REZs involved a small number of committed generators connecting to, and fully subscribing, the REZ asset. Under such conditions, cost allocation is straight forward. But when a geographically dispersed coalition of generators seek to connect over different timeframes and with longer distances involved – the cost allocation task and the tractability of merchant REZ commitment rises in complexity. Since merchant REZs are a novel concept, there is no historic practice to draw from. In this article, we identify the optimal coalition of connecting generators and rely on Shapley’s (1951) seminal work to devise a fair and efficient set of user charges, albeit in the context of renewable power project development. We also examine how to deal with transient idle capacity through structured financing and regulatory policy.

Suggested Citation

  • Simshauser, P. & Shellshear, E., 2025. "Renewable Energy Zones: Generator Cost Allocation Under Uncertainty," Cambridge Working Papers in Economics 2524, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2524
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Renewable Energy Zones; Renewables; Battery Storage; Shapely Value;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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