Economics seminar: Cross-country electricity trade, renewable energy and European transmission infrastructure policy - Sebastian Rausch

Event Date: 17 June 2015

We examine the gains from increased European cross-country electricity trade induced by transmission infrastructure policy (TIP) in a multi-country model that integrates a technology-rich representation of the electricity sector in an economy-wide general equilibrium framework.

Besides capturing the empirically relevant determinants for cross-country electricity trade, the model features a high temporal resolution to represent two-way trade in a homogeneous good (electricity) and endogenous transport costs that depend on the utilization of available transmission infrastructure.

We contend that economic benefits from proposed European electricity TIP break even with investment costs after only a few years. Gains from TIP increase with the level of intermittent renewable energy (RE) production. TIP generally makes the majority of European countries better off but can also yield negative impacts emanating from interactions with broader economic activities for "wheeling" countries and countries with a cheap mix of electricity production capacities.

Carbon dioxide emissions impacts of TIP are not unambiguous. At low or intermediate levels of RE energy production, in line with current and year-2020 EU targets, TIP induces a substitution towards coal-red electricity and hence increases emissions. If RE production is sufficiently high, TIP has the potential to yield sizeable emissions reductions in the electricity sector at the aggregate (European) level but also profoundly changes regional emissions patterns.

Published: 29 September 2015