http://think.eui.euOffshore transmission investmentsHow to regulate these investments? Who should act?North Seas Countries...
BackgroundTHINK Report #5“Offshore Grids: Towards a least regret EU policy“(published in January 2012)Three types of inves...
How to regulate offshore transmission investments?Shore to shore: projects overview                         Four projects,...
How to regulate offshore transmission investments?Shore to shore: TSOs propose, NRAs approvePlanning principle•   Importan...
How to regulate offshore transmission investments?Farm to shore: projects overview                 400                    ...
How to regulate offshore transmission investments?Farm to shore: strong economic featuresIn comparison with the connection...
How to regulate offshore transmission investments?Farm to shore: regulatory experimentation ongoingPlanning principle•   F...
Who should act?Standalone offshore linesThere is no need for a specific EU intervention for standalone offshore lines•   S...
How to regulate offshore transmission investments?Combined solutions: projects overview       Kriegers Flak              C...
Who should act?Combined solution: analytical approachThe difficulties of these investments under the current              ...
Who should act?Combined solution: difficulties & remediesNational frames for transmission investments that are not        ...
Who should act?Combined solution: difficulties & remediesNational renewable support schemes that are not aligned          ...
Who should act?Combined solution: difficulties & remediesMulti-stakeholder setting with winners and losers                ...
Who should act?Combined solution: difficulties & remediesGrid technology development constrained by typical R&D           ...
Who should act?Combined solution: difficulties & remediesSequential decision process in a context of uncertainty and      ...
http://think.eui.euThank you very much for your attentionleonardo.meeus@eui.eu  http://think.eui.eu
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Offshore transmission investments

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Presentation at the North Seas Countries’ Offshore Grid Initiative, April 2012, in Copenhagen.

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Offshore transmission investments

  1. 1. http://think.eui.euOffshore transmission investmentsHow to regulate these investments? Who should act?North Seas Countries’ Offshore Grid Initiative (NSCOGI)Copenhagen, 18-19 April 2012Leonardo Meeus(Florence School of Regulation, European University Institute)THINK (http://think.eui.eu) http://think.eui.eu
  2. 2. BackgroundTHINK Report #5“Offshore Grids: Towards a least regret EU policy“(published in January 2012)Three types of investment Shore to shore Farm to shore Combined solutionsHow to regulate these investments?Who should act? http://think.eui.eu 2
  3. 3. How to regulate offshore transmission investments?Shore to shore: projects overview Four projects, four regulatory frames: Estlink 350 MW VSC HVDC NorNed 700 MW CSC HVDC BritNed 1000 MW CSC HVDC Nemo 1000 MW CSC HVDC 3 http://think.eui.eu
  4. 4. How to regulate offshore transmission investments?Shore to shore: TSOs propose, NRAs approvePlanning principle• Important due to economies of scale and network externalities• Assessment: mainly national planning, while interdependencies across bordersCompetition principle• Important to the extent that there are cost and technology uncertainties• Assessment: most TSOs can only be contested with merchant projects, while opportune to also allow third parties to propose projects for a regulated returnBeneficiaries pay principle• Important to signal costs of demand for transmission• Assessment: mainly national tariffs, while these projects create winners and losers beyond national bordersIn conclusion: the current regulatory framework for transmission investments with across-border impact is economically unsound, but this problem also exists onshore http://think.eui.eu 4
  5. 5. How to regulate offshore transmission investments?Farm to shore: projects overview 400 HVAC 350 HVDC VSC 300 MVAC 250 Distance (km) 200 150 100 50 0 1990 1995 2000 2005 2010 2015 2020 -50 Year Commissioned http://think.eui.eu 5
  6. 6. How to regulate offshore transmission investments?Farm to shore: strong economic featuresIn comparison with the connection of a typical generator onshore:• Stronger network externalities, and economies of scale• Higher cost and technology uncertainties Borwin project: Tennet, ABB http://think.eui.eu 6
  7. 7. How to regulate offshore transmission investments?Farm to shore: regulatory experimentation ongoingPlanning principle• First-come-first-serve does not capture offshore economies of scale and network externalities• German model for offshore is a good example of advanced connection planningCompetition principle• Only allowing TSOs to develop connections does not sufficiently incentivize innovation, while there are high cost and technology uncertainties• UK model for offshore is a good example of how competitive tendering can be usedBeneficiaries pay principle• Generators that do not pay for their connection, do not have an incentive to proactively participate in connection planning• Swedish model for offshore is a good example of making generators pay for their connectionIn conclusion: the current regulatory framework to connect generators needs to beadapted to the stronger economic features of farm to shore investments , which is ongoing http://think.eui.eu 7
  8. 8. Who should act?Standalone offshore linesThere is no need for a specific EU intervention for standalone offshore lines• Shore to shore the problem is the same as onshore• Farm to shore the problem is localNonetheless,• The EU institutions can support the ongoing learning process by comparing the performance of novel regulatory frameworks (e.g. Germany, UK and Sweden)• It is also important to continue the implementation of the third package • With community-wide transmission planning that already includes shore to shore investments (TYNDP) • But, this still needs to be backed-up by an EU level facilitation of the ex-ante investment cost and benefit allocation • (Infrastructure package first step in this direction) http://think.eui.eu 8
  9. 9. How to regulate offshore transmission investments?Combined solutions: projects overview Kriegers Flak COBRA cable Moray Firth HVDC Hub Denmark, Germany, Sweden Denmark, Netherlands United Kingdom 150 M€ EU grant 86.5 M€ EU grant 74 M€ EU grantThe economic case of these projects is still uncertain, but regulation needs tobe proactive to enable this possibly important path to 2050 http://think.eui.eu 9
  10. 10. Who should act?Combined solution: analytical approachThe difficulties of these investments under the current Type of EUregulatory framework are tremendous involvement• Difficulties are the actual problems faced by these 3 “first of a Soft Strong kind” projects (Kriegers Flak, Cobra Cable, Moray Firth)• RemediesPossible role of the EU:• Soft EU involvement: guiding and supporting the national and/or regional policy implementation of the remedies;• Strong EU involvement: where a regional solution is not viable, a stronger involvement is already recommended today http://think.eui.eu 10
  11. 11. Who should act?Combined solution: difficulties & remediesNational frames for transmission investments that are not Type of EUaligned involvement• Kriegers Flak: TSOs in Denmark and Germany responsible for the Soft Strong connection, but not in Sweden• Cobra Cable: TSOs in Denmark and the Netherlands could connect √ German offshore wind, but they are not responsible for it and the German TSO is obliged to connectIndicative guidelines that encourage member states to follow theguiding principles of an economically sound regulatory frame fortransmission investments (i.e. planning principle, competitionprinciple, and beneficiaries pay principle) http://think.eui.eu 11
  12. 12. Who should act?Combined solution: difficulties & remediesNational renewable support schemes that are not aligned Type of EU involvement• Kriegers Flak: not necessarily an issue, because in the current project design each country would continue to import the offshore Soft Strong wind produced in its waters• Cobra case: German offshore wind could feed into the Danish or √ Dutch system, but the Germany renewable energy support is solely for energy delivered into the German system √Promote the use of the renewable support scheme flexibilitymechanisms for offshore wind farms (i.e. joint project and jointsupport scheme mechanisms) to reduce the distortions coming fromthe national support schemes http://think.eui.eu 12
  13. 13. Who should act?Combined solution: difficulties & remediesMulti-stakeholder setting with winners and losers Type of EU involvement• Kriegers Flak: 3 TSOs, 3 NRAs, 3 wind developers Soft Strong• Cobra: at least 2 TSOs, 2 NRAs, and potentially several wind developers.• Moray Firth: only 1 TSO and NRA, but potentially several wind √ developers √Organize the approval of transmission investment project packages(i.e. portfolio approach instead of cost benefit allocation √ √arrangements for individual projects), complemented with a newmechanism to implement the beneficiaries pay principle forcombined solutions http://think.eui.eu 13
  14. 14. Who should act?Combined solution: difficulties & remediesGrid technology development constrained by typical R&D Type of EUmarket failures involvement• The technology to use would typically be HVDC VSC, which is Soft Strong relatively new technology that has already been used for standalone lines, but not yet in a combined solution √• Combined solution systems require more advanced hardware and software that still need to be developed and tested √Include an offshore grid technology roadmap in the SET-Plan, within √ √an industrial initiative driven by HVDC manufacturers, focused onaccelerating offshore grid technology development required for largescale combined solutions (larger than in projects like Kriegers Flak, √Cobra, and Moray Firth) http://think.eui.eu 14
  15. 15. Who should act?Combined solution: difficulties & remediesSequential decision process in a context of uncertainty and Type of EUirreversibility involvement• Dimensions of offshore platforms Soft Strong• HVDC systems that operate at a different voltage √• Retrofitting a converter station to make it multi-terminal Incompatibility of for components coming from different• √ manufacturersDevelop improved transmission planning methods and apply them to √ √elaborate a Twenty or Thirty Year Network Development Plan thatconsiders combined solutions √ √ http://think.eui.eu 15
  16. 16. http://think.eui.euThank you very much for your attentionleonardo.meeus@eui.eu http://think.eui.eu
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