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1. Assessing the value of cross-border energy exchangesa) Backgroundb) Literature surveyc) Simulationd) Empirical analysis
2. Quantifying infrastructure need3. Insufficiency of current approach4. Proposals
Agenda
Market integration is a continous process with incremental benefits
1949 AT BE DK FR NL NO CH
FR 1x65kV1x70kV
2x60kV1x70kV
1x125kV4x150kV
IT 1x130kV 1x70kV1x150kV
1x130kV1x140kV1x150kV
NL 1x220kV SE 1x50kV 1x80kV DE 2x220kV
9x110kV1x220kV 1x110kV
1x150kV2x220kV
1x220kV 3x110kV1x220kV
2011 AT BE DK FR NL NO CH
FR 3x380kV3x220kV
5x220kV6x380kV
IT 1x220kV 1x110kV1x220kV3x380kV
1x110kV
5x220kV5x380kV
NL 4x380kV SE 2x110kV
2x380kV 2x110kV
1x220kV4x380kV
DE 20x110kV11x220kV2x380kV
1x110kV2x220kV3x380kV
2x220kV3x380kV
6x380kV 5x220kV7x380kV
Growth in exchanges exceeded growth in production
Note: West - Austria Belgium France Luxembourg Netherlands; East - Czech Republic Estonia Hungary Poland Romania Slovak Republic Slovenia; South -Greece Italy Portugal Spain; North -Denmark Finland Norway Sweden; British Islands - United Kingdom Ireland
1. Assessing the value of cross-border energy exchangesa) Backgroundb) Literature surveyc) Simulationd) Empirical analysis
2. Quantifying infrastructure need3. Insufficiency of current approach4. Proposals
1b Literature survey
Integration increases competition in the European electricity market
Benefits of competition and integration
Static DynamicCompetition • Reduced mark-ups
• Improved operation• Improved investment
decisions
Integration • Cross-border optimisation of operation
• Cross-border optimisation of investment decisions
• Cross-border optimisation of company structures (M&A)
Source: own calculation based on individual companies capacities reported in their 2012 annual reports as well as total capacities reported by the national regulatorsNoe: the reported HHI is the sum of the squared market shares of all major electricity producers in the covered countries. In US competition law an HHI below 1500 indicates an unconcentrated market, an HHI between 1500 and 2500 indicates a moderately concentrated market and an HHI above 2500 indicates a highly concentrated market.
In summary the reviewed literature points to the result that integration and competition can in the analysed cases reduced the cost of balancing by 44%, the cost of redispatch by more than 50%, the labour cost by 32.3% generation costs decreased by 13.5% in states
affected by restructuring, and nonfuel expenses declined by roughly 9% in those states
Literature Survey
1. Assessing the value of cross-border energy exchangesa) Backgroundb) Literature surveyc) Simulationd) Empirical analysis
2. Quantifying infrastructure need3. Insufficiency of current approach4. Proposals
1c Simulation
Two countries Four technologies Four scenarios:
1. No trade2. Limited trade3. Full trade4. Reoptimisation of power plant park (excl. RES and nuclear)
Simulation exercise
Country A = Germany Centre (TenneT Zone) Country B = Germany West (Amprion Zone) Hourly wind and solar feed in (n,c,g at 100%
availibility) Hourly demand (vertical load plus RES feed-in) Capital cost of gas plants = 30,000 €/MW and coal
plants = 50,000€ MW Variable cost of gas = 50 €/MWh and coal = 30€/MWh
Assumptions
System Cost:1. No trade = ###2. Limited trade = ###3. Full trade = ###4. Reoptimisation of power plant park = ###4b. Reoptimisation of power plant park given double RES share = ###
Results
Preliminary!!!
Interpretation:1. Most (static) trade benefits accrue already at limited trade2. Full trade has some marginal benefits3. Big gain is in Reoptimisation of power plant park 4. Increasing RES share increases the value of interconnection
1. Assessing the value of cross-border energy exchangesa) Backgroundb) Literature surveyc) Simulationd) Empirical analysis
2. Quantifying infrastructure need3. Insufficiency of current approach4. Proposals
1d Empirical analysis
Willingness to pay for interconnectors
2012 20130
50000
100000
150000
200000
250000
300000
350000
400000
450000
500000
SI IT SI IT
FR IT
FR IT
CH IT
CH IT
DE NL
DE NLDE CH CH DE DE NL
NL DE DE FR FR DE
DE D1 D1 DE BE FR
FR BE BE NL NL BE
AT CH CH AT IT AT
AT IT IT CH CH IT
IT FR FR IT IT GR
GR IT IT SI SI IT
Annual auction result in 1000EUR
1. Assessing the value of cross-border energy exchanges
2. Quantifying infrastructure need3. Insufficiency of current approach4. Proposals
Quantifying infrastructure need
Determining optimal infrastructure need is a challenging exercise that crucially depends on a number of assumptions. 1. Which measure should be optimised by the infrastructure
investment?2. Which development of the energy system in the coming
decades is considered? 3. Which technical options are considered?4. What cost assumptions for the different options?5. Which market design is assumed?
=> Estimates are largly assumption driven and barely comparablewe provide a survey
Determining optimal infrastructure
Roland Berger’s report (2011) • distribution and transmission together will require around EUR
400 billion + EUR 200 billion for 2010-2020 (65% electricity, 35% gas)
The European Infrastructure Priorities (2010) • 2011-2020: EUR 70 billion for transmission infrastructure, EUR
32 billion for offshore grid infrastructure and EUR 40 billion for smart grid infrastructure.
2013 OECD working paper• Grid shortage would make renewables deployment 38 billion
dollars more expensive The Energy Roadmap 2050
• 2011-2050 infrastructure requirements reach EUR 1269 billion in the reference and EUR 2195 billion in the high RES scenario
Infrastructure cost studies
Ten Year Network Development Plan 2012• increasing the total length of the network by 17 % over the
coming ten years ECF’s study (2011)
Hirschhausen et al. (2012)• Total investment costs for transmission capacity in Europe
2011-2050 of “80% GHG reduction” scenario: EUR 57 bn
Infrastructure cost studies
0
30
60 46 46 46 4668 62 61
30
20202030
Billion E
uro
Electricity has multiple dimensions that can be individually traded
Dimensions interact: => „grand design“ or complex set of interfaces
Market design for reaping benefits of integration
Nationally administered provision
Purely National market arrangement
National market arrangement with an interface for imports/exports
European market
Expected change in Importance
Frequency and voltage control
+
Ancillary services
Balancing +Intraday delivery of electricity
+
Day-ahead delivery of electricity
-
Capacity +Location Nordic +“greenness” Quotas +Emissions ETS
1. Assessing the value of cross-border energy exchanges
2. Quantifying infrastructure need3. Insufficiency of current approach4. Proposals
Insufficiency of current approach
Historic investment figures
2006 2007 2008 2009 2010 2011 201210000
12000
14000
16000
18000
20000
22000
24000
26000
28000
Visegrad4 (-3%) DE (-10%) ES (+9%) FR (+1%)
2006 2007 2008 2009 2010 2011 201210000
12000
14000
16000
18000
20000
22000
Visegrad4 (+5%) DE (+4%) ES (+18%)
FR (+2%)
2006 2007 2008 2009 2010 2011 20120
200
400
600
800
1000
1200
1400
1600
DE (+8%)ES (+9%)FR (+86%)UK(+1%)
Million e
uro
Figure 13: Length of 220kV circuit in km at the end of the year
Figure 14: Length of 400kV circuit in km at the end of the year
Figure 15: Investments in electricity networks by TSOs
No joint plan No binding plan (stakeholder not legally accountable) Planing by one non-neutral actor (ENTSO) non-transparent Complex/unclear target function – certainly not EU
social welfare
Insufficiency of infrastructure planing
Only weakly coordinated operation NTC ignores physical network FB Market coupling treats domestic and cross-border
congestion differently
Insufficiency of infrastructure operation
Merchant: underbuilds CEF: only ~5 bn and politically selected projects RAB: lack of int’l CBA
Insufficiency of infrastructure financing
1. Assessing the value of cross-border energy exchanges
2. Quantifying infrastructure need3. Insufficiency of current approach4. Proposals
Proposals
27
European control centre (See flight control ) Internalise redistribution Nodal pricing Day-to-day responsibility with national fall-back
Add a European system management layer
28
Upgrade the TYNDP: national regulators can only approve projects proposed by European planning
Make the TYNDP welfare-maximising: ACER should be requested and enabled to thoroughly check that the TYNDP maximises the welfare of current and future European citizens.• Build an European open-source reference energy infrastructure
model• Structure a process in which all relevant stakeholders can
contribute to the assumptions and the modelling• Make stakeholders liable to claims for damages from other
stakeholders if they deviate from their predictions Democratically legitimise the TYNDP : to reach
conclusion on distributional consequences
Establish a stringent planning process
29
Deep connection charges Harmonized grid tariff structure (distribution
between network users) An approximate beneficiary pays component A socialization component
Phase in European cost-benefit sharing
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