• Energy Research

Abstract Long distance power transmission is commonly considered as an option for reducing carbon footprint in future electricity systems. Accordingly, this article presents economic insights in a transcontinental power interconnection linking four Asian countries with Europe. Enhanced electricity trade through the interconnected countries is assessed via techno-economic modelling. For this purpose two electricity system scenarios are developed for the year 2040: (i) a Reference Scenario, where electricity system development follows the plans of the involved system operators and (ii) a so-called Trans-Asia Scenario, where additional power transmission capacities are added to strengthen the electricity trading route crossing the interconnected countries: Turkey, Georgia, Azerbaijan and Kazakhstan. Economic benefits arising from the proposed Trans-Asia Scenario are estimated as a change in social welfare in the electricity system. Modelling results show a 140 M€ increase in annual social welfare for the Trans-Asia Scenario. The subsequent cost-benefit analysis results in a net present value in the range of −221 M€ to 534 M€, at a discount rate of 4%. This implies that over a life-cycle period of 40 years, the evaluated economic benefit may compensate investments between 1598 M€ and 3251 M€ needed for the additional power transmission capacities.

Abstract We consider firms facing uncertain demand, and study their problem of investing in an electricity line between two neighbouring countries, under capacity constraints, and incentive schemes. We consider three ownership structures: a state-owned transmission company, a merchant transmission investor, and a regulated firm. The firm's problem is to choose the optimal time and size of the interconnector. The government is concerned with the incentive design. We investigate how price caps, capacity targets and merchant investments affect the critical investment thresholds and characterize the government's optimal incentive. We find that price caps speed-up projects' development, while capacity targets reduce under-investments in capacity markets. Finally, we study the effect of investment decisions on the social welfare value.

Abstract Increasing the deployment of power generators using variable renewable power sources, such as wind and solar, brings power balancing challenges in electricity systems. One mean to achieve power balancing and to share balancing resources, is to interconnect electricity systems to geographically aggregate remotely located variable power sources. This article addresses this potential and provides insights for electricity trading through a submarine power cable between Europe and the eastern part of North America. While such ambitious power interconnection concepts appear in recent literature, this article is the first to present a techno-economic analyses. This article concludes that, a 4000 MW cable between Europe and North America could bring an annual socio-economic benefit of 177 M€ in 2030. In addition to the differences in generation costs, mutual benefits from electricity trading between Europe and North America derive from different daily peak demand times, low correlation in generation from renewable energy sources, and in seasonal demand variations. The results of the cost-benefit analysis indicate that the benefit for society is sufficient to cover the investment costs. Thus, the proposed interconnector is welfare improving.

The effects of two environmental policy options for the reduction of pollution emissions, i.e. taxes and non-tradable quotas, are analyzed. In contrast to the prior literature this work endogenously takes into account the level of emissions before and after the adoption of the new environmental policy. The level of emissions is determined by solving the firm's profit maximization problem under taxes and fixed quotas. We find that the optimal adoption threshold under taxes is always larger than the adoption threshold under fixed quota, even in a setting characterized by ecological uncertainty and ambiguity - in the form of Choquet-Brownian motions - on future costs and benefits over adopting environmental policies.

AbstractThe effects of four environmental policy options for the reduction of pollution emissions, i.e. taxes, emission standards, auctioned permits and freely allocated permits, are analyzed. The setup is a real option model where the amount of emissions is determined by solving the firm's profit maximization problem under each policy instrument. The regulator solves an optimal stopping problem in order to find the critical threshold for policy adoptions taking into account revenues from taxes and auctioned permits and government spending. In this framework we find the ranking of the alternative policy options in terms of their adoption lag and social welfare. We show that when the output demand is elastic, emission standards are preferred to freely allocated permits. Taxes and auctioned permits are always equivalent in terms of their adoption lag and social welfare, and also equivalent to emission standards when the regulator redistributes revenues.