Hans Nylund, Jonas Egerer
The costs of cross-border transmission links have traditionally been shared equally between the two involved countries. However, capacity expansions are likely to create positive and negative externalities on a larger scale for all countries in a meshed electricity network. In this paper we compare a regional cost sharing framework (i.e., proportional allocation) to the traditional bilateral framework (i.e., equal allocation) with respect to the effects on welfare and grid capacity. The analysis combines a numerical optimisation model of the electricity market and a game-theoretical representation of the choices made by TSOs on capacity expansions. The model includes a stylised electricity system representing six European countries. Results show that the consideration of load-flow patterns compared to directed flows reduces the number of stable outcomes. The expansion game does not converge to one unique outcome, but to a set of stable outcomes. Regional cost sharing by the proportional rule gives stable outcomes that on average include more investments and are closer to the system-wide welfare optimum compared to bilateral equal sharing. A regional framework for cost sharing of transmission investments should therefore be considered as part of the solution to the problems of insufficient cross-border transmission capacity, which has been identified as a major issue in the development of the European electricity market.
Themen: Energiewirtschaft
DIW-Link
Array