Spatial arbitrage value of transmission upgrade investments. An economic and environmental assessment

This study contributes to the current discussion on the economic viability of new investments in transmission line upgrade and the associated environmental impact in terms of changes in CO2 emissions and renewable power integration. The line upgrade investment increases the power capacity between two interconnected zones, thus alleviating intra-zonal congestion. Its operation maximizes spatial arbitrage value by shifting power from the cost-efficient zone (with low marginal generation costs) to the neighbouring zone (with higher marginal costs), up to the interconnection capacity. The investment analysis focuses on the case of Sicily. In the first part of the study we assess the profitability of the line upgrade project. We assume 2013 as the reference year for the NPV analysis, so that profits and costs flow are the same as in 2013 during the entire investment period. In the second part of the study we assess the environmental impact of the project's operation in terms of CO2 emissions and changes in the share of renewable generation in the system. The environmental impact is determined by considering the carbon content/share of renewable of the power transferred from the lower price zone to the neighbouring zone. Both private and system values of investments in line upgrade result to be positive for the considered project. Power flows from one zone to the other as long as marginal costs of the first zone are lower than the marginal costs of the second zone. Power trade allows for economies of scale and improvement in environmental quality, as long as conventional (expensive/dirty) sources are replaced by renewable (cheap/clean) sources of power.

SPISTO Amanda;  SCHMIDT Johannes; 

2015-07-09

International Association of Energy Economists (IAEE)

JRC95630

http://www.iaee.org/en/publications/proceedingssearch.aspx?cid=89,    https://publications.jrc.ec.europa.eu/repository/handle/JRC95630,