Regional cost sharing in expansions of electricity transmission grids
International Journal of Energy Sector Management
ISSN: 1750-6220
Article publication date: 26 August 2014
Abstract
Purpose
The purpose of this paper is to analyse how the regional effects of expansion can be managed under the constraints of voluntary cooperation. This paper studies international cooperation on electricity transmission expansions in a region of countries that shares a joint electricity infrastructure.
Design/methodology/approach
Cooperative game theory and the partition-function form were applied in combination with benefit–cost ratios to model and analyse the incentives to cooperate under different cost allocation rules. Empirical background was provided by a case study of a transmission investment agreement made on the Nordic electricity market.
Findings
Both cost sharing and the composition of expansion plans were identified as ways of reaching regional agreements. It was found that agreements based on proportional division of costs in relation to benefits were the best choice for voluntary cooperation.
Research limitations/implications
The study did not analyse the effects or relevance of surplus sharing in addition to that implied by cost sharing, nor has it studied the regulatory and legal requirements for implementing side-payments between countries in grid expansions. These issues could benefit from more study.
Practical implications
The results are relevant for the development of international cooperation on grid expansions and as an input to regulations and policies aimed at promoting regional perspectives, in particular for the case of a single internal energy market in Europe.
Originality/value
The paper contributes with an analysis of incentives for transmission expansions in a multinational environment subject to voluntary provision and a lack of supranational authorities with decision power.
Keywords
Acknowledgements
Financial support from Vattenfall AB is gratefully acknowledged. The views expressed in the study are solely those of the author.
Citation
Nylund, H. (2014), "Regional cost sharing in expansions of electricity transmission grids", International Journal of Energy Sector Management, Vol. 8 No. 3, pp. 283-300. https://doi.org/10.1108/IJESM-04-2013-0001
Publisher
:Emerald Group Publishing Limited
Copyright © 2014, Emerald Group Publishing Limited