Abstract
The ability to cooperate in the expansion of renewable energies has long been recognized as welfare improving. However, the existing cooperation mechanisms introduced in the European Union appear to be insufficient to facilitate an efficient level of trade across borders. In this chapter we focus on the electricity sector and identify several characteristics of the market for renewable electricity support that contribute to this failure. We then propose a novel mechanism for cross-border support of renewable electricity capacity that addresses these failures in two steps: First, a cross-border impact factor is derived that provides an approximate indication of the spillover of benefits induced from renewable electricity capacity across the member states of the European Union. Second, a cross-border auction in which member states and generators of renewable electricity bid to either buy or supply additional renewable electricity capacity. The auctioneer uses the cross-border impact factor to determine the aggregate cross-border willingness to pay for additional renewable electricity capacity in each member state and selects the set of bids, which maximizes the EU-wide surplus. Inevitably, the design of the mechanism uses a simplified representation of the underlying system ‘reality’ in order to achieve the complexity reduction needed to create a ‘level playing field’, but in our view it would still represent cross-border impacts accurately enough to spur efficiency improvements in the right direction. Moreover, the fact that it could be integrated into the emerging market and regulatory framework in the European Union fairly easily is appealing.
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Change history
13 July 2019
The original version of Chapter 11 was inadvertently published with the incorrect city and country name appearing in the affiliation of the author Sebastian Busch. The affiliation ‘Knowledge for the Energy Union Unit, European Commission, Joint Research Centre, Ispra, Italy’ has been updated as ‘Knowledge for the Energy Union Unit, European Commission, Joint Research Centre, Petten, The Netherlands.’ Further, the original version of this chapter inadvertently did not contain the below disclaimer and now has been added as per author’s request.
Notes
- 1.
We use the numbering (1…6-i…v) in the following to refer to the individual barriers throughout the text where applicable.
- 2.
We propose that the system boundaries for calculating the impacts and constituting the auction bidding zones are set at MS level, which appears politically to be the most intuitive. The concept could also be applied with alternative zone configurations.
- 3.
Here we use the rather abstract metric ‘impacts’ instead of ‘benefits’, due to the implicit notion that benefits can generally be expressed in monetary terms. It might however be difficult to coherently valuate all relevant effects a priori. In several cases where effects can be monetized by (e.g. market-based) prices, they can be directly translated into monetary benefits (e.g. generation cost savings induced by changes in generation mixes) and thus impacts and benefits are quasi synonyms. On the other hand, certain impacts are likely subject to more individual valuation (e.g. avoided air pollution or generally the value of being ‘green’ and thus already assuming a generalized monetary valuation would preempt the individual valuation by MSs of these effects.
- 4.
The effects which possibly are not adequately represented by the limited scope of the metric typically account for a smaller portion in terms of the overall benefits. Thus in our view a certain deviation of calculated impacts from actual reality is acceptable if the essential complexity reduction can be achieved in turn. The effective and tolerable level of deviation should be subject to further research and may imply the development of a separate CBIF for effects where effects do not spill over according to the logic of electricity markets.
- 5.
In practical terms this could be something like Euros per MW consumed, where MW is a proxy for all desired effects associated with RES-E expansion.
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Acknowledgements
The work in this chapter synthesizes and updates earlier work by the authors (Busch et al. 2016) and parts of the PhD work conducted by Sebastian Busch (Busch 2017). For their valuable feedback and assistance on earlier versions of this work we wish to thank Mario Ragwitz, Karsten Neuhoff, Gustav Resch, Nick Bedard, Reinhard Haas, Daniel Huppmann, Corinna Klessmann, Lukas Liebmann and Gerhard Totschnig. We also recognize the two anonymous reviewers and the lector of this chapter for their valuable suggestions.
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Busch, S., Ortner, A. (2019). From National to Cross-Border Support of Renewable Electricity in the European Union. 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_11
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