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Modeling the Cost of Achieving a Renewable Energy Target: Does it Pay to Cooperate Across Borders?

  • Marcelo Saguan
  • Leonardo Meeus

Electricity markets are increasingly integrated across borders, but transmission and renewable energy policies often remain local and uncoordinated. In this paper, we analyze how cooperative behavior in developing renewable energy technologies across borders and/or cross-border transmission capacity investment can reduce the cost of achieving a renewable energy target. We use a three step equilibrium model with: i) transmission investment, ii) generation investment and iii) electricity market that we apply to an interconnected two zone system. We find that it pays to cooperate if the zones have different renewable energy sources, but the success of a renewable energy cooperation also depends on cooperation in transmission development, which is therefore an important interaction to take into account in renewable energy policy discussions.

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Paper provided by European University Institute in its series RSCAS Working Papers with number 2011/46.

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Date of creation: 15 Sep 2011
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Handle: RePEc:rsc:rsceui:2011/46
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Web page: http://www.eui.eu/RSCAS/

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  1. Sauma, Enzo E. & Oren, Shmuel S., 2009. "Do generation firms in restructured electricity markets have incentives to support social-welfare-improving transmission investments?," Energy Economics, Elsevier, vol. 31(5), pages 676-689, September.
  2. Paul L. Joskow, 2004. "Transmission Policy in the United States," Working Papers 0417, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  3. Meeus, Leonardo & Purchala, Konrad & Belmans, Ronnie, 2005. "Development of the Internal Electricity Market in Europe," The Electricity Journal, Elsevier, vol. 18(6), pages 25-35, July.
  4. Meeus, Leonardo, 2011. "Why (and how) to regulate power exchanges in the EU market integration context?," Energy Policy, Elsevier, vol. 39(3), pages 1470-1475, March.
  5. Benjamin, Richard, 2007. "Principles for Interregional Transmission Expansion," The Electricity Journal, Elsevier, vol. 20(8), pages 36-47, October.
  6. Yin, Haitao & Powers, Nicholas, 2010. "Do state renewable portfolio standards promote in-state renewable generation[glottal stop]," Energy Policy, Elsevier, vol. 38(2), pages 1140-1149, February.
  7. Leonardo Meeus, 2010. "Implicit Auctioning on the Kontek Cable: Third Time Lucky?," RSCAS Working Papers 2010/49, European University Institute.
  8. Joskow, Paul L., 2008. "Capacity payments in imperfect electricity markets: Need and design," Utilities Policy, Elsevier, vol. 16(3), pages 159-170, September.
  9. Lund, P.D., 2009. "Effects of energy policies on industry expansion in renewable energy," Renewable Energy, Elsevier, vol. 34(1), pages 53-64.
  10. Wiser, Ryan & Namovicz, Christopher & Gielecki, Mark & Smith, Robert, 2007. "The Experience with Renewable Portfolio Standards in the United States," The Electricity Journal, Elsevier, vol. 20(4), pages 8-20, May.
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