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Minimising costs and variability of electricity generation by means of optimal electricity interconnection utilisation

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  • Muireann Á. Lynch

    () (Department of Economics, University of Sussex, Falmer, United Kingdom)

  • Richard Tol

    () (Department of Economics, University of Sussex, Falmer, United Kingdom
    Institute for Environmental Studies and Department of Spatial Economic, Vrije Universiteit, Amsterdam, The Netherlands
    Tinbergen Institute, Amsterdam, The Netherlands
    CESifo, Munich, Germany)

  • Mark J. O’Malley

Abstract

We examine the payoffs to electrical interconnection between isolated systems considering minimisation of both costs and variability. We demonstrate that optimal interconnection portfolios cannot be derived analytically and must be simulated numerically. We present a mixed-integer linear programme which maximises payoff to interconnection and simulates the operation of stylised electricity systems. Interconnection is considered as both an endogenous and an exogenous variable. Demand and wind portfolios of varying levels of correlation are considered. Endogenous interconnection is negligible under all demand and wind scenarios. Under exogenous interconnection, one region is found to gain at the expense of another regarding both cost minimisation and variance minimisation. Payoff from interconnection is found to be primarily due to supply side considerations, in particular the thermal generation portfolio.

Suggested Citation

  • Muireann Á. Lynch & Richard Tol & Mark J. O’Malley, 2014. "Minimising costs and variability of electricity generation by means of optimal electricity interconnection utilisation," Working Paper Series 6814, Department of Economics, University of Sussex.
  • Handle: RePEc:sus:susewp:6814
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    File URL: http://www.sussex.ac.uk/economics/documents/wps-68-2014.pdf
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    References listed on IDEAS

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