Market arrangements for offshore wind energy networks

This report describes offshore market arrangements for offshore wind energy in interconnected offshore hubs, analysed for NSON-DK WP5, with focus on the North Sea region and especially on Denmark. The aim of this study is to explore different market arrangements for massive offshore wind generation in the North Sea that is at the same time internationally connected. The approach that we are taking for this is an economic feasibility study for a concrete case, an offshore hub or energy island. The hub (or energy island) connects 12 GW of offshore wind farms and interconnection capacity between Denmark, The Netherlands, and Germany. The complex energy system model Balmorel is used for optimising different economic scenarios.
Our quantitative economic analysis suggests that, from the countries connected to the hub, Germany would be the only one receiving net total economic benefits from the implementation, if no reallocation mechanism is agreed upon. Since the benefits in Germany are more than ten times higher than the losses incurred in the other participating countries, we foresee that cost-and-benefit sharing mechanisms and benefit transfers between countries will play an important role in the realisation of interconnected offshore hubs.
Market arrangements play an important role in this, as they reallocate surplus between different types of actors and between countries. The question of which electricity market the offshore wind farms in an interconnected hub should be assigned to, who should own which assets, and how the offshore wind farms should be remunerated, is investigated. Our results indicate that creating a separate offshore bidding zone can lead to a more efficient energy system set-up than sending the electricity to a home country market or granting Financial Transmission Rights to the offshore wind farm operators.