Development scenarios for the North and Baltic Seas Grid – A welfare economic analysis

Jonas Egerer, Friedrich Kunz and Christian von Hirschhausen

Utilities Policy, 2013, vol. 27, issue C, 123-134

Abstract: The North and Baltic Seas Grid is one of the largest pan-European infrastructure projects, increasing the potential of harnessing large amounts of renewable energy. This paper addresses the economic implications of different development scenarios of the North and Baltic Seas Grid on individual countries and stakeholders which may raise concerns about the implementation in largely nationally dominated regulatory regimes. The paper develops three scenarios and quantifies the technical-economic effects: i) the status quo, in which engagement in the North and Baltic Seas is largely nationally driven; ii) a trade scenario dominated by bilateral contracts and point-to-point connections; and iii) a meshed network scenario of fully interconnected cables crossing both the North Sea and the Baltic Seas making 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 in such a scheme, namely the incumbent electricity generating firms in France, Germany, and Poland, as well as 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 authorities will need to mandate the investment in order for it to be made. We also find strong interdependencies between offshore grid expansion and the subsequent onshore network.

Keywords: Electricity; Offshore transmission; Rent allocation (search for similar items in EconPapers)
JEL-codes: D60 L51 L94 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Related works:
Working Paper: Development Scenarios for the North and Baltic Sea Grid: A Welfare Economic Analysis (2012)
Working Paper: Development Scenarios for the North and Baltic Sea Grid - A Welfare Economic Analysis (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:juipol:v:27:y:2013:i:c:p:123-134

DOI: 10.1016/j.jup.2013.10.002

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