do local benefits justify voluntary agreements in transmission interconnection investments?
DESCRIPTION
Do local benefits justify voluntary agreements in transmission interconnection investments?. Manuel V. Loureiro Supervisors: Paul Fischbeck (CMU) João Claro (FEUP). Current Situation. Integration of national transmission networks is desired by the European Union Increase competition - PowerPoint PPT PresentationTRANSCRIPT
Do local benefits justify voluntary agreements in transmission interconnection investments?
Manuel V. Loureiro
Supervisors:Paul Fischbeck (CMU)
João Claro (FEUP)
2
Current Situation
Integration of national transmission networks is desired by the European Union Increase competition Increase social welfare
In the Barcelona European Council (2002) a target of 10% of installed interconnection capacity (based on the existing production capacity in 2005) was defined
This policy target has failed
3
Current Situation
Low interconnection capacity Market power is not mitigated There are congestion costs Price differentials remain Requires higher reserve capacity
4
Current Situation
Price coupling of day-ahead electricity markets from Portugal to Finland has already been achieved
Is there competition in the electricity markets? Number of generation companies is
small Incumbents increased
concentration after the liberalization process
Could this reduce incentives for interconnection?
5
How to increase interconnection capacity?
Should interconnection capacity be regulated or enforced by the European Union?
Could voluntary agreements for cross-border investment be signed between member states?
Are there reasonable incentives for member states to voluntarily invest in interconnection capacity?
6
Interconnection Transmission Expansion Problem in Market Coupled RegionsInterconnection Transmission Expansion Problem in Market Coupled RegionsInterconnection Transmission Expansion Problem in Market Coupled Regions
Let us define the problem
It is a Transmission Expansion Problem
A transmission line reinforces power transfer
between two regions
Each region has its particular transmission
planner
These regions operate in a single electricity market
Interconnection Transmission Expansion Problem in Market Coupled RegionsInterconnection Transmission Expansion Problem in Market Coupled Regions
7
Literature ReviewInvestments in Interconnections
• Buijs et al. (2011) a supraregional model is compared to a non-cooperative game model.• In a Nash Equilibrium a Player could have a negative impact in Social Welfare
• Buijs and Belmans (2012) a new planning scheme is considered• Cases where Social Welfare is reduced cannot be solutions
Both schemes underperform when compared to the supraregional model
8
Literature ReviewNash Bargaining
• In Haurie and Zaccour (1991) two power utilities use bargaining to decrease generation and investment costs
• In Bai et al. (1997) contracts are established, in prices and quantities, for transmission of power
• Bargaining of right-of-way valuation between transmission line investors and land owners has also been studied (Molina, Contreras and Rudnick, 2012, 2013a, 2013b)
9
Strategy
Single decision-maker interested in maximizing total Social Welfare
Two decision-makers cooperate in the interest of maximizing their own
Social Welfare
Supraregional Model Local Model with Bargaining
What is the optimal capacity investment ?
How much should each player invest?
How are these models related?
10
Nash Bargaining
Model
Strategy
Supraregional Model Local Model with Bargaining
Wand WavingOptimality Conditions
and Substitutions
New Constraints:• Optimal Result is the same
11
Source: Own figures using data available at http://www.mibel.com/
Preparing DataRegression of Supply and Demand
Saturdays of January 2013 in Off-Peak Hours
12
Preliminary ResultsImpact of Transmission Capacity
-500 0 500 1000 1500 2000 2500 3000 3500 4000 4500-1
0
1
2
3
4
5
6
7x 10
6 Increase in Social Welfare by invested Transmission Capacity
Transmission Capacity (MWh)
Incr
ease
in S
ocia
l Wel
fare
with
out I
nves
tmen
t Cos
ts (€
)
SpainPortugal
-500 0 500 1000 1500 2000 2500 3000 3500 4000 4500-3
-2
-1
0
1
2
3
4x 10
6
Transmission Capacity (MWh)
Inve
stm
ent C
osts
(€)
Increase in Social Welfare by invested Transmission Capacity
SpainPortugal
13
Preliminary ResultsTrade-Off between Investors
-3 -2 -1 0 1 2 3 4
x 106
-0.5
0
0.5
1
1.5
2
2.5x 10
6
Investment Value of Spain (€)
Inve
stm
ent V
alue
of P
ortu
gal (
€) Increase in Transmission Cost
Both players invest
Investment requires compensation
14
-0.5 0 0.5 1 1.5 2 2.5 3 3.5 4-1
-0.5
0
0.5
1
1.5
2
Total Investment Value (M€)
Rat
io (%
)
Ratio of Investments by the Value of Total Investment
SpainPortugal
Preliminary ResultsRatios of Investment
0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000-1
-0.5
0
0.5
1
1.5
2
Investment Cost per Unit of Transmission Capacity(€)
Rat
io (%
)
Ratio of Investments by the Unitary Cost of Investment
SpainPortugal
Player must compensate
Both players invest
Player is compensated
15
Do local benefits justify voluntary agreements in transmission interconnection investments?
If two regions decide to cooperate, the decision should be indistinguishible of a supraregional one
Both players have benefits with interconnections The importer desires a capacity equal to the capacity thar allows free-trade The exporter would prefer a smaller amount of capacity
Voluntary agreements are possible as long as the share of investments costs reflect the benefits of each region
These results are dependent of Perfect competition Economic rationality Indifference between of consumer and produces surpluses Acceptance of compensations and investments over each regions frontiers Lack of transmission losses and internal congestion
16
Conclusions and Further Research
• We present a novel model that is a first step to understand investments in interconnections considering local voluntary agreements
• Research in topic is relevant due to the efforts to establish the single European Electricity Market
• Further Research• Consider explicit transmission networks to study
• Impact of Internal Congestion• Impact of different Interconnection corridors