Regulating Future Offshore Grids: Economic Impact Analysis on Wind Parks and Transmission System Operators

Lena Kitzing, Sascha Thorsten Schröder

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    Abstract

    The increasing development of offshore wind parks in the European offshore territory may lead to meshed offshore grids in which each wind park might be connected to several countries. Such offshore grids could be subject to various regulatory regimes, depending on the degree of cooperation between the respective countries. This study focuses on how investors in wind parks and transmission systems are affected by the choice of regulatory regime in offshore grids with one to four countries connected. In order to capture the uncertainties related to the exposure to market prices as well as risks related to line failures, we develop a stochastic model for an exemplary wind park and offshore grid. This yields the real option values of operational flexibility from additional connections. Simulation results show that the choice of regulatory regime, including market access and pricing rules, can have a significant impact on the value of a wind park and on the value of the interconnection capacity in the offshore grid. The impact can both be positive and negative, implying a complex incentive structure for the involved actors. If contrary effects are not reflected in the remuneration level of a wind park, for example in the price premium level, investment incentives could either be diminished or the wind park could incur windfall profits. Both cases are socio-economically suboptimal as they may pose additional cost to the system. Policy makers should consider these findings when designing the regulatory regime and level of support in an offshore grid in order to maintain an effective and efficient development of offshore wind in Europe.
    Original languageEnglish
    Publication date2012
    Number of pages27
    Publication statusPublished - 2012
    Event12th IAEE European Energy Conference: Energy challenge and environmental sustainability - Ca' Foscari University of Venice, Venice, Italy
    Duration: 9 Sep 201212 Sep 2012
    http://www.iaeeu2012.it/

    Conference

    Conference12th IAEE European Energy Conference: Energy challenge and environmental sustainability
    LocationCa' Foscari University of Venice
    CountryItaly
    CityVenice
    Period09/09/201212/09/2012
    Internet address

    Bibliographical note

    Winner of the IAEE 2012 Best Student Paper Award (first place)

    Keywords

    • Economic impact analysis
    • Offshore grids
    • Offshore wind
    • Regulatory regime

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