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Development Scenarios for the North and Baltic Sea Grid - A Welfare Economic Analysis

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Listed:
  • Jonas Egerer
  • Friedrich Kunz
  • Christian von Hirschhausen

Abstract

The North and Baltic Sea Grid is one of the largest pan-European infrastructure projects raising high hopes regarding the potential of harnessing large amounts of renewable electricity, but also concerns about the implementation in largely nationally dominated regulatory regimes. The paper develops three idealtype development scenarios and quantifies the technical-economic effects: i) the Status quo in which engagement in the North and Baltic Sea is largely nationally driven; ii) a Trade scenario dominated by bilateral contracts and point-to-point connections; and iii) a Meshed scenario of fully interconnected cables both in the North Sea and the Baltic Sea, 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 of such a scheme, e.g. the incumbent electricity generators in France, Germany, and Poland, and 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 much of the investment will have to be regulated to come about. We also find strong interdependencies between offshore grid expansion and the subsequent onshore network.

Suggested Citation

  • Jonas Egerer & Friedrich Kunz & Christian von Hirschhausen, 2012. "Development Scenarios for the North and Baltic Sea Grid - A Welfare Economic Analysis," RSCAS Working Papers 2012/69, European University Institute.
  • Handle: RePEc:rsc:rsceui:2012/69
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    References listed on IDEAS

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    1. Parail, V., 2010. "Properties of Electricity Prices and the Drivers of Interconnector Revenue," Cambridge Working Papers in Economics 1059, Faculty of Economics, University of Cambridge.
    2. Nardi, Paolo, 2012. "Transmission network unbundling and grid investments: Evidence from the UCTE countries," Utilities Policy, Elsevier, vol. 23(C), pages 50-58.
    3. Malaguzzi Valeri, Laura, 2009. "Welfare and competition effects of electricity interconnection between Ireland and Great Britain," Energy Policy, Elsevier, vol. 37(11), pages 4679-4688, November.
    4. Brunekreeft, Gert & Neuhoff, Karsten & Newbery, David, 2005. "Electricity transmission: An overview of the current debate," Utilities Policy, Elsevier, vol. 13(2), pages 73-93, June.
    5. Turvey, Ralph, 2006. "Interconnector economics," Energy Policy, Elsevier, vol. 34(13), pages 1457-1472, September.
    6. de Nooij, Michiel, 2011. "Social cost-benefit analysis of electricity interconnector investment: A critical appraisal," Energy Policy, Elsevier, vol. 39(6), pages 3096-3105, June.
    7. Doorman, Gerard L. & Frøystad, Dag Martin, 2013. "The economic impacts of a submarine HVDC interconnection between Norway and Great Britain," Energy Policy, Elsevier, vol. 60(C), pages 334-344.
    8. Florian Leuthold & Hannes Weigt & Christian Hirschhausen, 2012. "A Large-Scale Spatial Optimization Model of the European Electricity Market," Networks and Spatial Economics, Springer, vol. 12(1), pages 75-107, March.
    9. Brunekreeft, Gert, 2005. "Regulatory issues in merchant transmission investment," Utilities Policy, Elsevier, vol. 13(2), pages 175-186, June.
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    Citations

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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. repec:aen:journl:ej37-si3-egerer is not listed on IDEAS
    3. repec:eee:appene:v:212:y:2018:i:c:p:223-232 is not listed on IDEAS
    4. 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.
    5. Jonas Egerer, 2016. "Open Source Electricity Model for Germany (ELMOD-DE)," Data Documentation 83, DIW Berlin, German Institute for Economic Research.
    6. 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.
    7. 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.
    8. 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.
    9. 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

    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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