Abstract
Transnational cooperation on the provision of power generation capacity can be of great benefit to EU member states. Whether this potential can be realised depends essentially on the allocation of decision-making competences between the EU and its member states, which remains a matter of controversial debate. This chapter is dedicated to studying different options for the allocation of responsibilities in a union of states from an institutional economic point of view. Based on a qualitative examination of different simplified governance models we identify general advantages and disadvantages of national and supranational competences related to the provision of power generation capacity. We find that in some areas such as resource adequacy planning, comprehensive action at the supranational level seems desirable, so as to make full use of cooperation potentials. In other areas, the requirements imposed upon member states can be considered as an ill-conceived use of central decision-making power; this includes, for instance, designing national RES-E instruments and capacity remuneration mechanisms or the use and extension of interconnection capacities. In such cases restrictive binding standards on a supranational level are likely to neglect national preferences and will often turn out to be detrimental to achieving common policy goals. A presumably favourable role of a supranational regulator could be to provide a framework for international coordination and support cooperation initiatives that are implemented on a bilateral or regional level.
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Notes
- 1.
This chapter represents a condensed version of Hoffrichter and Beckers (2018a), which furthermore assesses the current situation in the EU in light of the findings presented in this chapter; besides, it discusses selected market design topics in more detail. The Working Paper Hoffrichter and Beckers (2018a) was prepared as part of TU Berlin—WIP’s research activities in the project “Kopernikus ‘ENavi’, a navigation system for the energy transition” (funded by the German Federal Ministry of Education and Research, BMBF). The analysis incorporates previous work by TU Berlin—WIP carried out within the framework of the project “Effiziente Koordination in einem auf Erneuerbaren Energien basierenden europäischen Elektrizitätsversorgungssystem (EK-E4S)”, which was funded by the German Federal Ministry for Economic Affairs and Energy (BMWi); apart from the authors of this chapter, Daniel Weber and Alexander Weber delivered substantial contributions in this context.
- 2.
Due to the inherent conflict of objectives, the problems discussed ultimately rather resemble a multi-objective optimisation than a constrained cost optimisation.
- 3.
At this point in time, existing storage systems in Europe can only cover a small share of the aggregate load. Even though storing electricity might play an important role in replacing conventional plants in the future, in the following we do not explicitly distinguish between electricity generation in power plants and infeed from storage as it would increase the complexity without substantially affecting our main lines of argument and thus the findings. Furthermore, it is worth mentioning that, in principle, electricity demand can also be adjusted to a certain degree. Although in many power systems around the world the possibilities to make adjustments on the demand side have been improved over recent years—mostly due to increased regulatory efforts—short-term flexibility is generally still subject to significant limitations.
- 4.
The particularly high capital intensity of reserve plants is mostly due to their lower utilisation rates which go along with lower fuel costs. The same applies to intermittent renewables, whose production does not involve any fuel costs. Cf. for instance Neuhoff et al. (2015).
- 5.
Cf. for instance Joskow (2006).
- 6.
Installing RES-E plants at the most suitable locations with respect to production costs might lead to a higher spatial concentration, which is detrimental to the stability of the aggregate RES-E infeed.
- 7.
In practice, the merit-order curve is based on the information transmitted to the system operator; usually by means of bids from the generators. In case of strategic bidding behaviour (which, for instance, often appears when generators have market power) the generators’ bids might contain mark-ups and, therefore, the merit-order curve might not accurately reflect the plants’ marginal costs.
- 8.
For an exemplary discussion and model-based illustration of distributional effects related to cross-border network extensions cf. Gerbaulet and Weber (2018).
- 9.
Cf. Kunz (2018).
- 10.
Cf. Ostrom (1990), who distinguishes between so-called “transformation costs” and “monitoring and enforcement costs”.
- 11.
For a detailed discussion of the content, cf. Hoffrichter and Beckers (2018b).
- 12.
Besides, further streams of income, such as revenues from contracts on the supply of ancillary services (e.g., control reserve) might be available to generators; with respect to the overall findings presented in this section, they do not play a very important role.
- 13.
- 14.
Redispatch means that in a first step, market interactions between supply and demand side actors happen without taking account of transport restrictions. Whenever the market results are not compatible with the grid’s transport capability, the production of some plants, in a second step, is replaced by the production of other plants (with higher marginal costs) on the other side of the transport bottleneck. This centralised process is usually managed—more or less manually—by the system operator (on behalf of the regulator) and carried out in a way that affects market actions as little as possible.
- 15.
Recalling the example of excessive loop-flows in the power systems of Germany’s eastern neighbours (see Sect. 2.1.3), one solution that was discussed extensively was to split the uniform price zone of Austria and Germany into (at least) two parts to better align decentralised trade decisions with the reality of the grid. However, the acute problems were tackled in the end by installing phase shifters at the national borders to physically prevent the unwanted electricity flows. On a side note: It is, in principle, conceivable that the measures taken were partly or even predominantly based on motives other than the loop-flow problem (such as protecting domestic power instustries from competition); in this chapter, we do not discuss this issue in more detail.
- 16.
In the course of the assessment, we consider additional regulatory measures to take account of emerging issues, which lead to more moderate applications of the EOM concept that feature an advanced scope of centralised regulatory action.
- 17.
As stated in Sect. 2.1.1, in this chapter we focus on resource adequacy when discussing security of supply issues.
- 18.
- 19.
Cf. Hoffrichter et al. (2018).
- 20.
Security of supply generally shows essential characteristics of a public good. In this context, individual states in an interconnected power system might be incentivised to minimise their own efforts in providing guaranteed generation capacity, if they can rely on other states to carry this burden.
- 21.
For a discussion of how external effects (or “spill-overs”) can be taken into account using the fiscal federalism approach, cf. Oates (1999).
- 22.
Member states might, among other options, use their remaining national competences to impede the implementation of centralised decisions. In order to prevent, for instance, the development of new plant projects in its territory, a country could theoretically use (local) spatial planning or environmental instruments. Effective resistance, however, does not necessarily require the existence of national competences. Cf. in this context Hirschman (1970), who describes how the compulsory character of a collective is determined by the amount of existing “voice and exit options”.
- 23.
Cf. the considerations on “laboratory federalism” in Oates (1999).
- 24.
In a multi-country setting the complexity will be substantially higher.
- 25.
- 26.
Cf. Hoffrichter and Beckers (2018b).
- 27.
To give another example of opportunistic actions, the host country could (unilaterally) limit the available interconnection capacity between the two countries to an extent that restricts the plants’ possible contributions to electricity supply in the funding country. Economic theory also refers to such opportunistic actions as “creeping expropriation”; cf. for instance Sawant (2010) and Steffen (2018), who both address this topic when discussing the role of project finance in international infrastructure projects. For concrete examples of retroactive changes to RES-E schemes in EU countries, which might be assessed as opportunistic regulatory actions against foreign investors, cf. Fouquet and Nysten (2015).
- 28.
- 29.
Cf. Hoffrichter and Beckers (2018a).
- 30.
The omission of the derivation of certain decisions is partly due to the fact that some selection decisions during the model conceptualisation process were not entirely based on insights from economic theory. Some selection decisions were majorly influenced by the authors’ experience as well as input from other experts on the subject.
- 31.
Cf. Hoffrichter and Beckers (2018b).
- 32.
Konstantelos et al. (2017) for instance, suggest applying the so-called “positive net benefit differential” (PNBD) method for the distribution of costs and benefits of collaborative initiatives. For further considerations regarding methods for the identification and sharing of costs and benefits from collaborations on electricity supply (although primarily with respect to grid investment), cf. Busch (2017) and Flament et al. (2015).
- 33.
Cf. Hoffrichter and Beckers (2018a).
- 34.
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Hoffrichter, A., Beckers, T. (2019). International Coordination on the Provision of Power Generation Capacity: An Institutional Economic Assessment of Decision-Making Competences in a Union of States. In: Gawel, E., Strunz, S., Lehmann, P., Purkus, A. (eds) The European Dimension of Germany’s Energy Transition. Springer, Cham. https://doi.org/10.1007/978-3-030-03374-3_10
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