Minimising System Costs: Reforming Transmission Charges and Renewable Electricity Contracts

David M. Newbery

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

Abstract: European energy plans envisage a large increase in Variable Renewable Electricity (VRE), often located distant from demand and congesting existing transmission. Many countries recognise the importance of better locational signals for investment and operation, and possible changes to VRE support systems to reduce risk and cost. This article argues that an efficient low-carbon transition requires a suitable portfolio of reforms to transmission and market pricing and VRE support design, with different combinations suitable when some options (like spatial transmission charges or locational wholesale pricing) are ruled out. Forward-looking spatial transmission contracts offer the simplest decentralised solution for least-cost VRE expansion plans, failing which spatial planning may be needed to coordinate transmission delivery with VRE commissioning.

Keywords: Variable Renewable Electricity; Curtailment; Congestion; Locational Pricing; Transmission Pricing (search for similar items in EconPapers)
JEL-codes: L94 Q42 Q48 (search for similar items in EconPapers)
Date: 2026-07-05
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:2646

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