Renewable Energy Zones: Generator Cost Allocation Under Uncertainty

Paul Simshauser () and Evan Shellshear

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: Renewable Energy Zones (REZs) are increasingly used to coordinate large-scale renewable investments while minimising the cost and footprint of transmission infrastructure in transitioning power systems. In the Queensland region of Australia’s National Electricity Market, REZs have been developed as merchant assets, with transmission costs recovered from connecting generators rather than consumers. While this model enables rapid deployment, its financial viability becomes challenging as REZs extend further from the transmission backbone, and user charges approach generators’ capacity-to-pay limits. Prior research examined individual drivers of REZ performance, including resource complementarity, access regimes, transmission line ratings and battery storage. However, these factors have been treated in isolation and under simplified cost allocation assumptions, leaving uncertainty about the bankability of merchant REZs once rising capital costs and realistic financing constraints are jointly considered. This article develops an integrated optimisation framework that determines the efficient mix of wind, solar, and storage within a merchant REZ with cooperative game-theoretic cost allocation and a generator capacity-to-pay constraint. Central to the analysis is a comparison of static, seasonal, and real-time transmission line ratings. Using an applied case study from Queensland, we show real-time line ratings substantially increase renewable hosting capacity, energy output and the aggregate capacity to pay. This transforms a merchant REZ from financially constrained to bankable. Seasonal ratings deliver intermediate gains, while static ratings leave a persistent revenue shortfall. Although based on Australia, the framework and insights are generalisable to other power systems pursuing scale-efficient renewable integration.

Keywords: Renewable Energy Zones; Real-Time Line Ratings; Renewables; Battery (search for similar items in EconPapers)
JEL-codes: D52 D53 G12 L94 Q40 (search for similar items in EconPapers)
Date: 2026-04-07
New Economics Papers: this item is included in nep-ene, nep-env, nep-gth, nep-ppm and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:2524

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