European Energy Infrastructure

1. European Energy Infrastructure Georg Zachmann 27 May 2013

2. Assessingthevalueofcross-borderenergyexchanges • Background • Literaturesurvey • Simulation • Empiricalanalysis • Quantifyinginfrastructureneed • Insufficiencyofcurrentapproach • Proposals • Agenda

3. Market integrationis a continousprocesswithincrementalbenefits

4. Growth in exchangesexceededgrowth 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

5. Annual netpositionsincreased

6. Assessingthevalueofcross-borderenergyexchanges • Background • Literaturesurvey • Simulation • Empiricalanalysis • Quantifyinginfrastructureneed • Insufficiencyofcurrentapproach • Proposals • 1b Literaturesurvey

7. Integration increasescompetition in the European electricitymarket • Benefitsofcompetitionandintegration Source: own calculation based on individual companies capacities reported in their 2012 annual reports as well as total capacities reported by the national regulators Noe: 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.

8. 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

9. Assessingthevalueofcross-borderenergyexchanges • Background • Literaturesurvey • Simulation • Empiricalanalysis • Quantifyinginfrastructureneed • Insufficiencyofcurrentapproach • Proposals • 1c Simulation

10. Two countries • Fourtechnologies • Fourscenarios: • Notrade • Limited trade • Fulltrade • Reoptimisationof power plant park (excl. RES andnuclear) • Simulation exercise

11. Country A = Germany Centre (TenneT Zone) • Country B = Germany West (Amprion Zone) • Hourly wind and solar feed in (n,c,gat 100% availibility) • Hourlydemand (verticalload plus RES feed-in) • Capital costof gas plants = 30,000 €/MW andcoalplants = 50,000€ MW • Variable costof gas = 50 €/MWhandcoal= 30€/MWh • Assumptions

12. System Cost: • No trade = ### • Limited trade = ### • Full trade = ### • Reoptimisation of power plant park = ### 4b. Reoptimisation of power plant park given double RES share = ### • Results Preliminary!!!

13. Interpretation: • Most (static) trade benefits accrue already at limited trade • Full trade has some marginal benefits • Big gain is in Reoptimisation of power plant park • Increasing RES share increases the value of interconnection

14. Assessingthevalueofcross-borderenergyexchanges • Background • Literaturesurvey • Simulation • Empiricalanalysis • Quantifyinginfrastructureneed • Insufficiencyofcurrentapproach • Proposals • 1d Empiricalanalysis

15. Willingnesstopayforinterconnectors Annual auctionresult in 1000EUR

16. Assessingthevalueofcross-borderenergyexchanges • Quantifyinginfrastructureneed • Insufficiencyofcurrentapproach • Proposals • Quantifyinginfrastructureneed

17. Determining optimal infrastructure need is a challenging exercise that crucially depends on a number of assumptions. • Which measure should be optimised by the infrastructure investment? • Which development of the energy system in the coming decades is considered? • Which technical options are considered? • What cost assumptions for the different options? • Which market design is assumed? => Estimatesarelarglyassumptiondrivenandbarelycomparable weprovide a survey • Determining optimal infrastructure

18. 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 • Gridshortagewouldmakerenewablesdeployment38 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 coststudies

19. 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 coststudies

20. Electricity has multiple dimensions that can be individually traded • Dimensionsinteract: => „grand design“ orcomplexsetofinterfaces • Market design forreapingbenefitsofintegration

21. Assessingthevalueofcross-borderenergyexchanges • Quantifyinginfrastructureneed • Insufficiencyofcurrentapproach • Proposals • Insufficiencyofcurrentapproach

22. Figure 14: Length of 400kV circuit in km at the end of the year Figure 13: Length of 220kV circuit in km at the end of the year • Historicinvestmentfigures Figure 15: Investments in electricity networks by TSOs

23. Nojoint plan • Nobinding plan (stakeholder not legally accountable) • Planingbyone non-neutral actor (ENTSO) • non-transparent • Complex/uncleartargetfunction – certainly not EU socialwelfare • Insufficiencyofinfrastructureplaning

24. Onlyweaklycoordinatedoperation • NTC ignoresphysicalnetwork • FB Market couplingtreatsdomesticandcross-bordercongestiondifferently • Insufficiencyofinfrastructureoperation

25. Merchant: underbuilds • CEF: only ~5 bn and politically selected projects • RAB: lack of int’l CBA • Insufficiencyofinfrastructurefinancing

26. Assessingthevalueofcross-borderenergyexchanges • Quantifyinginfrastructureneed • Insufficiencyofcurrentapproach • Proposals • Proposals

27. European control centre (See flightcontrol ) • Internaliseredistribution • Nodalpricing • Day-to-day responsibility with national fall-back • Add a European system management layer

28. Upgrade the TYNDP: nationalregulators can only approve projects proposed by European planning • Make the TYNDP welfare-maximising: ACER should be requested and enabledto 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

30. Different regional settings • EU 27+ (ENTSO, ACER, EU) • NWE • Penta-lateral • Merger of TSOs • Merger of PX • Joint regulator • Bilateral (FR-DE) • Merger of TSOs • Merger ofPX (alreadyhappened) • Joint regulator • Discussion: Who should propose a market design