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Presentation at the North Seas Countries’ Offshore Grid Initiative, April 2012, in Copenhagen.
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http://think.eui.eu
Offshore transmission investments How to regulate these investments? Who should act? North Seas Countries’ Offshore Grid Initiative (NSCOGI) Copenhagen, 18-19 April 2012 Leonardo Meeus (Florence School of Regulation, European University Institute) THINK (http://think.eui.eu)
http://think.eui.eu
http://think.eui.eu
Background THINK Report #5
“Offshore Grids: Towards a least regret EU policy“ (published in January 2012)
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Three types of investment Shore to shore Farm to shore Combined solutions
How to regulate these investments? Who should act?
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Four projects, four regulatory frames:
NorNed 700 MW
CSC HVDC
Estlink 350 MW
VSC HVDC
BritNed 1000 MW CSC HVDC
Nemo 1000 MW CSC HVDC
How to regulate offshore transmission investments? Shore to shore: projects overview
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How to regulate offshore transmission investments? Shore to shore: TSOs propose, NRAs approve
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Planning principle • Important due to economies of scale and network externalities • Assessment: mainly national planning, while interdependencies across borders
Competition principle • Important to the extent that there are cost and technology uncertainties • Assessment: most TSOs can only be contested with merchant projects, while
opportune to also allow third parties to propose projects for a regulated return
Beneficiaries pay principle • Important to signal costs of demand for transmission • Assessment: mainly national tariffs, while these projects create winners and losers
beyond national borders
In conclusion: the current regulatory framework for transmission investments with a cross-border impact is economically unsound, but this problem also exists onshore
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How to regulate offshore transmission investments? Farm to shore: projects overview
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1990 1995 2000 2005 2010 2015 2020
Dist
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(km
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Year Commissioned
HVACHVDC VSCMVAC
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How to regulate offshore transmission investments? Farm to shore: strong economic features
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In comparison with the connection of a typical generator onshore:
• Stronger network externalities, and economies of scale • Higher cost and technology uncertainties
Borwin project: Tennet, ABB
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How to regulate offshore transmission investments? Farm to shore: regulatory experimentation ongoing
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Planning principle • First-come-first-serve does not capture offshore economies of scale and network
externalities • German model for offshore is a good example of advanced connection planning
Competition principle • Only allowing TSOs to develop connections does not sufficiently incentivize innovation,
while there are high cost and technology uncertainties • UK model for offshore is a good example of how competitive tendering can be used
Beneficiaries pay principle • Generators that do not pay for their connection, do not have an incentive to proactively
participate in connection planning • Swedish model for offshore is a good example of making generators pay for their
connection
In conclusion: the current regulatory framework to connect generators needs to be adapted to the stronger economic features of farm to shore investments , which is ongoing
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Who should act? Standalone offshore lines
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There is no need for a specific EU intervention for standalone offshore lines • Shore to shore the problem is the same as onshore • Farm to shore the problem is local
Nonetheless, • The EU institutions can support the ongoing learning process by comparing the
performance of novel regulatory frameworks (e.g. Germany, UK and Sweden) • It is also important to continue the implementation of the third package
• With community-wide transmission planning that already includes shore to shore investments (TYNDP)
• But, this still needs to be backed-up by an EU level facilitation of the ex-ante investment cost and benefit allocation
• (Infrastructure package first step in this direction)
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How to regulate offshore transmission investments? Combined solutions: projects overview
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Kriegers Flak Denmark, Germany, Sweden
150 M€ EU grant
COBRA cable Denmark, Netherlands
86.5 M€ EU grant
Moray Firth HVDC Hub United Kingdom 74 M€ EU grant
The economic case of these projects is still uncertain, but regulation needs to be proactive to enable this possibly important path to 2050
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Who should act? Combined solution: analytical approach
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The difficulties of these investments under the current regulatory framework are tremendous • Difficulties are the actual problems faced by these 3 “first of a
kind” projects (Kriegers Flak, Cobra Cable, Moray Firth) • Remedies
Possible role of the EU: • Soft EU involvement: guiding and supporting the national and/or
regional policy implementation of the remedies; • Strong EU involvement: where a regional solution is not viable, a
stronger involvement is already recommended today
Type of EU involvement
Soft Strong
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Who should act? Combined solution: difficulties & remedies
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Indicative guidelines that encourage member states to follow the guiding principles of an economically sound regulatory frame for transmission investments (i.e. planning principle, competition principle, and beneficiaries pay principle)
National frames for transmission investments that are not aligned • Kriegers Flak: TSOs in Denmark and Germany responsible for the
connection, but not in Sweden • Cobra Cable: TSOs in Denmark and the Netherlands could connect
German offshore wind, but they are not responsible for it and the German TSO is obliged to connect
Type of EU involvement
Soft Strong
√
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Who should act? Combined solution: difficulties & remedies
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National renewable support schemes that are not aligned • Kriegers Flak: not necessarily an issue, because in the current
project design each country would continue to import the offshore wind produced in its waters
• Cobra case: German offshore wind could feed into the Danish or Dutch system, but the Germany renewable energy support is solely for energy delivered into the German system
Promote the use of the renewable support scheme flexibility mechanisms for offshore wind farms (i.e. joint project and joint support scheme mechanisms) to reduce the distortions coming from the national support schemes
Type of EU involvement
Soft Strong
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Who should act? Combined solution: difficulties & remedies
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Multi-stakeholder setting with winners and losers • Kriegers Flak: 3 TSOs, 3 NRAs, 3 wind developers • Cobra: at least 2 TSOs, 2 NRAs, and potentially several wind
developers. • Moray Firth: only 1 TSO and NRA, but potentially several wind
developers
Organize the approval of transmission investment project packages (i.e. portfolio approach instead of cost benefit allocation arrangements for individual projects), complemented with a new mechanism to implement the beneficiaries pay principle for combined solutions
Type of EU involvement
Soft Strong
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Grid technology development constrained by typical R&D market failures • The technology to use would typically be HVDC VSC, which is
relatively new technology that has already been used for standalone lines, but not yet in a combined solution
• Combined solution systems require more advanced hardware and software that still need to be developed and tested
Who should act? Combined solution: difficulties & remedies
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Include an offshore grid technology roadmap in the SET-Plan, within an industrial initiative driven by HVDC manufacturers, focused on accelerating offshore grid technology development required for large scale combined solutions (larger than in projects like Kriegers Flak, Cobra, and Moray Firth)
Type of EU involvement
Soft Strong
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Who should act? Combined solution: difficulties & remedies
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Sequential decision process in a context of uncertainty and irreversibility • Dimensions of offshore platforms • HVDC systems that operate at a different voltage • Retrofitting a converter station to make it multi-terminal • Incompatibility of for components coming from different
manufacturers
Type of EU involvement
Soft Strong
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Develop improved transmission planning methods and apply them to elaborate a Twenty or Thirty Year Network Development Plan that considers combined solutions