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

1. http://think.eui.eu
Offshore transmission investments
How to regulate these investments? Who should act?
North Seas Countries’ Offshore Grid Initiative (NSCOGI)
Copenhagen, 18-19 April 2012
Leonardo Meeus
(Florence School of Regulation, European University Institute)
THINK (http://think.eui.eu)
http://think.eui.eu

2. Background
THINK 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 solutions
How to regulate these investments?
Who should act?
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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
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4. How to regulate offshore transmission investments?
Shore to shore: TSOs propose, NRAs approve
Planning principle
• Important due to economies of scale and network externalities
• Assessment: mainly national planning, while interdependencies across borders
Competition 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 return
Beneficiaries pay principle
• Important to signal costs of demand for transmission
• Assessment: mainly national tariffs, while these projects create winners and losers
beyond national borders
In conclusion: the current regulatory framework for transmission investments with a
cross-border impact is economically unsound, but this problem also exists onshore
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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
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6. How to regulate offshore transmission investments?
Farm to shore: strong economic features
In 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
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7. How to regulate offshore transmission investments?
Farm to shore: regulatory experimentation ongoing
Planning 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 planning
Competition 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 used
Beneficiaries 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
connection
In conclusion: the current regulatory framework to connect generators needs to be
adapted to the stronger economic features of farm to shore investments , which is ongoing
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8. Who should act?
Standalone offshore lines
There 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 local
Nonetheless,
• 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)
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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 grant
The economic case of these projects is still uncertain, but regulation needs to
be proactive to enable this possibly important path to 2050
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10. Who should act?
Combined solution: analytical approach
The difficulties of these investments under the current Type of EU
regulatory 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)
• Remedies
Possible 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
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11. Who should act?
Combined solution: difficulties & remedies
National frames for transmission investments that are not Type of EU
aligned 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 connect
Indicative guidelines that encourage member states to follow the
guiding principles of an economically sound regulatory frame for
transmission investments (i.e. planning principle, competition
principle, and beneficiaries pay principle)
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12. Who should act?
Combined solution: difficulties & remedies
National 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 flexibility
mechanisms for offshore wind farms (i.e. joint project and joint
support scheme mechanisms) to reduce the distortions coming from
the national support schemes
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13. Who should act?
Combined solution: difficulties & remedies
Multi-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 new
mechanism to implement the beneficiaries pay principle for
combined solutions
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14. Who should act?
Combined solution: difficulties & remedies
Grid technology development constrained by typical R&D Type of EU
market 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 on
accelerating offshore grid technology development required for large
scale combined solutions (larger than in projects like Kriegers Flak, √
Cobra, and Moray Firth)
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15. Who should act?
Combined solution: difficulties & remedies
Sequential decision process in a context of uncertainty and Type of EU
irreversibility 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
•
√
manufacturers
Develop improved transmission planning methods and apply them to √ √
elaborate a Twenty or Thirty Year Network Development Plan that
considers combined solutions
√
√
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16. http://think.eui.eu
Thank you very much for your attention
leonardo.meeus@eui.eu
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