Influence of national and company interests on European electricity transmission investments

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Sähkötekniikan korkeakoulu | Doctoral thesis (monograph)
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Verkkokirja (6363 KB, 184 s.)
Aalto University publication series DOCTORAL DISSERTATIONS , 77/2011
The objective of this study is to analyse to what extent national and company interests prevent electricity transmission investments which would be beneficial for Europe. The study has provided strong evidence that national and company interests have influence on cross-border transmission investments. It indicates that national and company interests have contributed to serious underinvestment in the European transmission network from the overall welfare point of view. Vertically integrated TSOs prioritise investments for increasing exports which increase income for their owner, while profitable interconnectors in import direction are often not developed at all. The behavioural pattern is less clear with the majority of the TSOs which are publicly owned and can be considered as semi-independent. The study has demonstrated that there is an important dimension of welfare distribution between the countries connected but also within the countries due to the change in the market outcome when an interconnector is built. There are a number of factors that potentially influence the motivation of a TSO for investing to increase cross-border capacity. The study shows that it is possible to develop objective criteria for interconnector investments. Social welfare benefits from price arbitrage should be one criterion but several other criteria should be used as well including price convergence, security of supply and competition benefits. Flaws in market design, capacity calculation and capacity allocation need to be addressed to provide efficient signals for interconnector investments. This should include designing of price zones, on which a proposal is made in this study, and working on the loop flow problem which is already acute for some countries in Europe. The study proposes an approach for addressing the cost-allocation of future transmission investments in order to take into account European wide the costs and benefits of those investments.
Supervising professor
Lehtonen, Matti, Prof.
electricity transmission network, investments, national interests, company interests
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