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

Muireann Lynch, Richard Tol and Mark O’Malley

Working Paper Series from Department of Economics, University of Sussex Business School

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.

Date: 2014-04
New Economics Papers: this item is included in nep-ene
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Persistent link: https://EconPapers.repec.org/RePEc:sus:susewp:6814

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