Structuring Green Electricity Investment in Europe: Development Scenarios and Application to the North and Baltic Sea Grid

Transcription

1 IAEE European Conference Venice, September, 2012 Green Electricity Investment in Europe: Development Scenarios for Generation and Transmission Investments EIB Working Paper X/2012 Christian von Hirschhausen Workgroup for Infrastructure Policy (WIP) Berlin University of Technology Structuring Green Electricity Investment in Europe: Development Scenarios and Application to the North and Baltic Sea Grid Prof. Dr. Christian von Hirschhausen, et al

2 Main Results 1. Asking for the optimal green transmission is as useful as asking the optimal way to get from Berlin to Venice 2. We see three stylized scenarios for developing green transmission and generation investments in Europe: 1.European-wide integration 2.Regional cooperation 3.National approaches 3. The case of the North and Baltic Sea Grid illustrates that different development paths have different allocative and distributional implications, that are difficult to compare - 1 -

3 Agenda 1. Introduction: What is the Optimal Amount of Green Transmission Investment? 2. Three Different Development Scenarios for Europe 3. Application: The North and Baltic Sea Grid 4. Conclusions - 2 -

4 What is the Optimal Way to get from Berlin to Venice? 1. Choice of Technology 2. Time Constraint 3. Price 4. But also: Choice of Pathway - Berlin Florence Venice - Berlin Göttingen - Venice - 3 -

5 What is the Optimal Level of Green Investment to Integrate Large-Scale Renewables? 1. Choice of Technology - HVDC - AC 2. Choice of Voltage kv kv kv kv 3. Price 4. Choice of Pathway - 4 -

6 Transmission investment is important for the Energy Roadmap 2050, but investment in generation (including storage, demand-side management, etc.) is by far more important Investment in new electricity interconnections (bn. EUR) European Commission (2011), and Adapted from ECF (2011, summary presentation, pp. 9,10) - 5 -

7 Agenda 1. Introduction: What is the Optimal Amount of Green Transmission Investment? 2. Three Different Development Scenarios for Europe 3. Application: The North and Baltic Sea Grid 4. Conclusions - 6 -

8 Green Investment in Generation and Transmission expansion can take three different forms: pan-european, regional, and national Europe centralized (energy-highways all over the place ~ European infrastructure priorities) Regional + National (less infrastructure needs and cooperation on regional scale) (infrastructure is developed nationally and cooperation on regional scale) Electricity [Egerer et al., 2011] [EC, 2010] -7- [FNN, ÜNB, 2012]

9 Capacity instruments are, for the time being, purely national UK-EMR: Capacity instrument D: Fossil-fuel support program / strategic reserve - 8 -

10 Three Stylized Scenarios for the Green Investment Challenge European coordinating institutions in place not in place Geographic Scope Europe-wide 1) Europe centralized./. Regional 2) Regional + 3) National Christian von Hirschhausen November 2011

11 Agenda 1. Introduction: What is the Optimal Amount of Green Transmission Investment? 2. Three Different Development Scenarios for Europe 3. Application: The North and Baltic Sea Grid 4. Conclusions

12 Recent Study: Egerer, Kunz, von Hirschhausen (2012): Planning the Offshore North and Baltic Sea Grid Model Scope: Three separated AC control zones Connected by HVDC offshore grid Reference year: 2009 Nodes 2069 AC lines 2877 DC lines 8 Time resolution: 80 non-consecutive reference hours Season (2x), demand (10x), wind (4x) Free allocation of hydro reservoir generation

13 The 3 Scenarios, applied to the North and Baltic Sea Grid National (Base case) : Separate wind integration and trade connectors Point-to-point connectors between two countries Regional + (Trade scenario): Separate wind integration and trade connectors Point-to-point connectors between two countries European integration (Meshed scenario: Combined wind integration and trade capacity Meshed offshore system [Wind+ scenario: Additional on- and offshore wind generation capacity Data based on 2020 figures of OffshoreGrid Project] Christian von Hirschhausen November 2011

14 Number of players (n) and Bilateral Contacts (BC) in the NSOGI in the three scenarios

15 Modeling Approach Model Scope: Three separated AC control zones Connected by HVDC offshore grid Reference year: 2009 Nodes 2069 AC lines 2877 DC lines 8 Time resolution: 80 non-consecutive reference hours Season (2x), demand (10x), wind (4x) Free allocation of hydro reservoir generation

16 Traditional Welfare Modeling Approach DC Load Flow Model with welfare maximization (ELMOD) Source: Leuthold et al. (2011)

17 Two Zone Example Welfare and Surpluses Zone 1: Exports 1 increase p 1 higher PS 1 and lower CS 1 Zone 2: Imports 1 decrease p 2 lower PS 2 and higher CS 2 Congestion Rent (CR 1,2 ) = flow 1,2 * (p 2 p 1 )

18 Results: Change in trade flows Net balance only changes in GB (+) and DE & NL (-) Balancing renewable generation between Scandinavia and UCTE is realized in the modeled scenarios (national imports and exports increses) Meshed network more trade between NL and GB

19 Results: National welfare implications (II) Different designs have strong impact on welfare gains/losses Meshed network sees higher overall welfare gains than trade scenario Tendency of winners and losers for all scenarios - Isolated countries with excessive and flexible generation capacity gain welfare (GB, NO, SE) - Largest net importer (NL) gains by lower prices - Traditional exporting countries lose some export share (FR, DE)

20 Just like in other transmission projects, important distributional consequences must be taken into account Change in national consumer and producer rents: Strong national rent shifting effects in most countries Meshed network leads to higher rent shifting (stronger price convergence) Some countries experience higher internal congestion with offshore connectors More wind in the system creates similar results (reservoirs!)

21 Agenda 1. Introduction: What is the Optimal Amount of Green Transmission Investment? 2. Three Different Development Scenarios for Europe 3. Application: The North and Baltic Sea Grid 4. Conclusions

22 Main Results 1. Asking for the optimal green transmission is as useful as asking the optimal way to get from Berlin to Venice 2. We see three stylized scenarios for developing green transmission and generation investments in Europe: 1.European-wide integration 2.Regional cooperation 3.National approaches 3. The case of the North and Baltic Sea Grid illustrates that different development paths have different allocative and distributional implications, that are hardly to compare

23 IAEE European Conference Venice, September, 2012 Green Electricity Investment in Europe: Development Scenarios for Generation and Transmission Investments EIB Working Paper X/2012 Christian von Hirschhausen Workgroup for Infrastructure Policy (WIP) Berlin University of Technology Structuring Green Electricity Investment in Europe: Development Scenarios and Application to the North and Baltic Sea Grid Prof. Dr. Christian von Hirschhausen, et al

24 Results Model outputs: System welfare (objective) Nodal consumer surplus (CS) Nodal producer surplus (PS) Locational marginal prices (LMP) Line flows on each link Calculated output results: National consumer surplus National producer surplus National congestion rent National welfare (=sum of previous ones) Christian von Hirschhausen November 2011

25 5. Congestion rents are most likely insufficient to cover expansion costs, which limits the potential of merchant financing Congestion rents of HDVC interconnectors highly sensitive to new transmission capacity: Few more merchant projects can foster sufficient congestion rent to be profitable Risk that follow-up investments cut into profits If expectation that ongoing market integration with new transmission capacity, early investors (NorNed, 2009) profits but how about second generation (BritNed, 2011) or third generation (NorthConnect, 2020)