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Project No: 297852
Project Acronym: RES Grid Integration
Project Full Name: Regulated Expansion of Electricity Transmission
Networks: the Effects of Fluctuating Demand and RES Generation
Marie Curie Actions
Final Report
Period covered: from 01/05/2012 to 30/04/2014 Date of preparation: 11/04/2014
Start date of project: 01/05/2012 Date of submission (SESAM):
Project coordinator name:
Prof. Claudia Kemfert
Project coordinator organisation name:
DEUTSCHES INSTITUT FUER
WIRTSCHAFTSFORSCHUNG E.V.
Version: 1
Project No.: 297852
Period number: Final
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Final Report
PROJECT FINAL REPORT
Grant Agreement number:
Project acronym:
297852
RES Grid Integration
Project title:
Regulated Expansion of Electricity Transmission
Networks: the Effects of Fluctuating Demand and
RES Generation
FP7-MC-IIF
01/05/2012
30/04/2014
Prof. Claudia Kemfert DEUTSCHES INSTITUT
FUER WIRTSCHAFTSFORSCHUNG E.V.
Funding Scheme:
Project start date:
Project end date:
Name, title and organisation of the
scientist in
charge of the project's
coordinator:
Tel:
Fax:
E-mail:
Project website address:
Project No.: 297852
Period number: Final
+493089789663
+493089789113
ckemfert@diw.de
https://www.diw.de/sixcms/detail.php?id=diw_01.c.392447.de
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FINAL PUBLISHABLE SUMMARY REPORT
This section normally should not exceed 2 pages.
This is a comprehensive summary overview of results, conclusions and the socio-economic impacts of the
project. The publishable report shall be formatted to be printed as a stand alone paper document. This report
should address a wide audience, including the general public.
Please ensure that it:
- Is of suitable quality to enable direct publication by the REA or the Commission.
- Is comprehensive, and describes the work carried out to achieve the project's objectives; the main results,
conclusions and their potential impact and use and any socio-economic impact of the project. Please mention any
target groups such as policy makers or civil society for whom the research could be relevant.
- Includes where appropriate, diagrams or photographs and the project logo, illustrating and promoting the work
of the project.
- Provides the address of the project Website (if applicable) as well as relevant contact details.
Final Publishable Summary Report:
The main goal of this project was to enhance the understanding on how to regulate and expand transmission
networks in the light of large-scale renewable-energy-source (RES) integration to electricity systems.
The regulation of transmission operation and expansion is widely discussed by regulatory economists.
Finding optimal mechanisms is difficult given the specific physical characteristics of electricity
networks like negative local externalities due to loop flows obeying the Kirchhoff’s laws. Considering
RES-specific issues in network regulation analysis further required to take into account some other
complex special objectives and constraints. In particular, the timing of electricity dispatch in RES
systems is more frequent and fluctuating than conventional electricity systems, and a renewableintegration process (which substitutes conventional energy with renewable sources) has an effect on
the rents from congestion in the network. All these aspects have impacts on transmission investment
decisions.
This research project then combined theoretical research on the regulation of transmission expansion
with applications to different energy systems, and derived policy implications to help decision makers
identify appropriate policies. In order to analyze such issues, we initially relied on the HoganRosellon-Vogelsang (HRV) mechanism1 which combines merchant and regulatory structures to
promote the expansion of networks. Another approach to transmission expansion would be traditional
central planning, which may either be carried out within a vertically integrated utility or by a
regulatory authority. Another alternative might be traditional cost-of-service regulation. In contrast,
transmission decisions could also be determined in a totally decentralized, non-regulated way. The
HRV approach lies among these approaches, combining regulation (via price caps), and market
incentives via property rights in electricity investment (financial transmission rights, FTRs). In this
project we thus analyzed whether the unique variability and unpredictability characteristics of RES
had an effect on transmission expansion decisions within the HRV analytical framework, as well as on
investment decisions made under other regulatory regimes.
To address these issues, we first analyzed in Schill, Egerer and Rosellón (2014) (second revise-andresubmit status at Journal of Regulatory Economics) the performance of different regulatory
approaches for network expansion in the context of realistic demand patterns and fluctuating wind
power. We applied these mechanisms to a stylized model of the Western European transmission
network. We explicitly included both an hourly time resolution and fluctuating wind power, which
substantially increased the real-world applicability of the approach. We solved the model numerically
and compared the economic welfare outcomes, and the optimal levels of network expansion. We
found that network extension in Western Europe not only increased social welfare due to diminished
congestion, but also led to price convergence and therefore a large redistribution of social welfare.2
Comparing different regulatory approaches, we found that the combined merchant-regulatory regime
led to welfare outcomes far superior to other modelled alternatives.
Hogan, W., J. Rosellón and I. Vogelsang (2010), “Toward a Combined Merchant-Regulatory Mechanism for Electricity
Transmission Expansion”, Journal of Regulatory Economics, forthcoming.
2 For an Italian case study, Boffa et al. (2010) find that transmission expansion leads to cost savings for consumers. In our
paper, we show that removing congestion in the Western European interconnection harms consumers in Germany and France
because of increasing spot prices, whereas consumers in Belgium and the Netherlands benefit from network expansion.
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Project No.: 297852
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Further, in Egerer, Rosellón and Schill (2014) (accepted for publication at The Energy Journal) we
addressed the rationale for regulation of transmission investment under a renewable integration
process characterized by the gradual substitution of conventional power (e.g., coal) with renewable
energy sources (e.g., wind). This transition towards a low carbon electricity sector can have temporary
or permanent exogenous shocks on transmission requirements. We studied different regulatory
regimes for electricity transmission investment in such a context. An independent system operator
(ISO) collects nodal-price payments from loads and pays the generators. The difference between these
payments is the congestion rent, which is assumed to be transferred to the transmission company
(Transco). We modeled then a welfare-maximizing benchmark (WFMax) in which a social planner
makes combined decisions on network expansion and dispatch, as well as three different regulatory
cases in which we assume the Transco to be unregulated regarding network expansion (NoReg), costregulated (CostReg), or price-cap regulated (HRV). We compared these cases to a baseline without any
network expansion. The different regulatory cases were analyzed under different stylized cases of
changing technology generation over a timeframe of 20 years. We found that incentive price-cap HRV
regulation performs satisfactorily under a renewable-integration process only when appropriate price
weights in the price-cap formula are used. Ideally constructed quantity weights, brought back from
welfare-optimal steady-state equilibrium, generally restored the beneficial properties of incentive
regulatory mechanisms under renewable integration. However, we also searched to more down-toearth weight alternatives. We thus found that, depending on the expected evolution of network
congestion, either previous-period (Laspeyres), current-period (Paasche), or average PaascheLaspeyres quantity weights appear to be appropriate choices. In particular, with the proper handling of
weights, excessive network investments (that are usual in renewable integration processes) might not
be a problem anymore.
In the previous studies we found, however, that a combined merchant-regulatory regime for network
expansion also leads to a situation in which a substantial portion of the Transco’s income consists of a
fixed tariff part. The over-time rebalancing of the two-part tariff carried out by the Transco, so as to
expand the network, is such that the fixed fee is considerably higher than the decrease of the variable
part. The fixed-tariff part also turns out to be relatively large compared to extension costs, a
distributive issue that might be addressed through a proper choice of weight of profits in the welfare
criterion. We therefore studied in Herrera and Rosellón (2014) (article in press at Energy Policy) the
parameters that a regulator might use to achieve distributive efficiency (a task that had so far not been
explicitly analyzed in the economics literature). In particular, we analyzed how different weight
parameters affect the distributive characteristics of the incentive price-cap regulation. We found that a
regulator's use of ideal (Laspeyres) weights tends to be more beneficial for the Transco (consumers)
than for consumers (the Transco).
As described above, we performed applications of the models developed in this project to France,
Germany, Belgium and the Netherlands. However, we also analysed such models in the context of
other industries, such as natural gas (as in Neumann, Rosellón and Weigt, 2014, second revise-andresubmit status at Networks and Spatial Economics) and other countries outside Europe (Ruiz and
Rosellón, 2012, published at Energy Policy).
It must be mentioned that the above studies were developed under the assumption of existence of a
system of nodal prices that provided congestion-rent signals for the network-expansion process.
However, during the development of the project, a question arose regarding the feasibility of
implementing nodal price systems in markets with a tradition of uniform-pricing schemes (such as
Germany).
This motivated us to carry a deep analysis on issues related to implementation of nodal pricing
regimes and associated needed financial hedges (financial transmission rights, FTRs). We then firstly
put together a series of papers that analyzed these issues in a book published by Springer in its Lecture
Note series (Rosellón and Kristiansen, 2013). We were able to attract to this volume some of the most
internationally renowned authors in the subject.
Subsequently, we wrote a paper (Kunz, Neuhoff and Rosellón, 2014, accepted to be presented net June
at the conference on Energy Industry at a Crossroads: Preparing the Low Carbon Future/TIGER
Project No.: 297852
Period number: Final
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FORUM, 2014, Toulouse, France) where we studied the shift from zonal pricing to smaller zones and
nodal pricing so as to improve efficiency and security of the electricity-system operation. Such price
changes however also shift profits and surplus between generators and consumers, so that individual
actors that may lose might oppose such a reform. The initial allocation of FTRs in a newly created
nodal-price system has then been one of the most highly disputed parts of market liberalization
processes, as in New Zealand and Australia. In Europe there is nowadays a similar challenge, with
considerable dimension of high respective shares that are competing for the pie. In our paper we
developed a model to explore how an initial free allocation of FTRs at the time of a transition to nodal
pricing could be designed so as to avoid revenue or cost shock. We explored how free allocation of
FTRs to generators and loads can be used to mitigate distributional impacts. We researched on the
metric to determine the proportion of rights to be allocated by the policy maker, and tested the results
in a more realistic setting based on the hourly modelling of the German power system at nodal
representation.
2. USE AND DISSEMINATION OF FOREGROUND
Section A (public) – DISSEMINATION MEASURES
This section should describe the dissemination measures, including any scientific publications relating to
foreground and specify any applications for patents etc. Its content will be made available in the public domain
thus demonstrating the added-value and positive impact of the project on the European Union.
Dissemination activities
Comments:
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Project No.: 297852
Period number: Final
Conference on Energy Industry at a Crossroads: Preparing the Low Carbon
Future/TIGER FORUM 2014, “Allocation of FTRs to Ease Transition to Nodal
Pricing (joint with Friedrich Kunz and Karsten Neuhoff),” University of Toulouse,
Toulouse, France, June 5-6, France
28th Latin American Meeting of the Econometric Society: LAMES, “Testing
Regulatory Regimes for Power Transmission Expansion with Fluctuating Demand and
Wind Generation (joint with Wolf-Peter Schill, and Jonas Egerer),” Mexico D.F.,
Mexico, 31.10.2013 - 02.11.2013
Berlin Conference on Electricity Economics (2013): Modeling and Policy in the
Energy Transformation – Germany, Europe, and Beyond, presentation of the book:
Rosellón, J. and T. Kristiansen (eds.), (2013); Financial Transmission Rights:
Analysis, Experiences and Prospects, Lecture Notes in Energy 7, Springer Verlag,
ISBN: 978-1-4471-4786-2 , Berlin, Germany, October 10th, 2013.
Berlin Conference on Electricity Economics (2013): Modeling and Policy in the
Energy Transformation – Germany, Europe, and Beyond, "Power System
Transformation towards Renewables: Effects on Optimal Network Expansion",
Berlin, Germany, October 10th, 2013.
EnerTrain Autumn School (2013), Transmission Expansion and Regulation of
Electricity Networks: Theory and Numerical Simulations, Juan Rosellón, Coordinated
by the German Institute for Economic Research (DIW Berlin) and the Workgroup for
Economic and Infrastructure Policy (WIP) at TU Berlin, Berlin, 07.10.2013 11.10.2013.
13th European IAEE Conference 2013, “Towards Optimal Regulation of
Transmission Network Investment under Renewable Integration,” Düsseldorf,
Germany, August 18-21, 2013.
10th International Conference on the European Energy Market (EEM13), “Towards
Optimal Regulation of Transmission Network Investment under Renewable
Integration,” Stockholm, Sweden, May 28-30, 2013.
National Congress on Basic Scientific Research (Congreso Nacional de Investigación
Científica Básica), “An Incentive Mechanism for Electricity Transmission
Expansion,” Mexican National Science Foundation (Conacyt), Cancún, Mexico,
November 21-23, 2012.
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Project No.: 297852
Period number: Final
Sustainability Cluster-Brown Bag Seminar, “Testing Regulatory Regimes for Power
Transmission Expansion under RES Grid Integration,” German Institute for Economic
Research (DIW Berlin), Berlín, Alemania, 24 October, 2012 (“kick-off” meeting).
Conference on „Modellgestützte Analysen für die Strommarktgestaltung zur
Integration erneuerbarer Energien im Rahmen der Energiewende,“ German Institute
for Economic Research (DIW Berlin), Berlín, Alemania, 12 October, 2012.
INFRATRAIN, 2012, DIW Berlin.
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Publications
The list of scientific publications (see article II.11 of the grant agreement) starting with the most important ones,
should specify:
- publication name,
- date and page in order to be able to identify it (see proposed template).
LIST OF SCIENTIFIC PUBLICATIONS, STARTING WITH THE MOST IMPORTANT ONES
No.
Title /
DOI
Main
author
Title of the
periodical or
the series
Number,date
or frequency
Publisher
Place of
publication
Date of
publication
Relevant
pages
Permanent
identifiers (if
applicable)
Is open access
provided to
This
publication?
1. W.P. Schill J. Egerer, and J. Rosellón (2014), “Testing Regulatory Regimes for Power
Transmission Expansion with Fluctuating Demand and Wind Generation,” Journal of
Regulatory Economics, (second) revise and resubmit.
2. Egerer, J., J. Rosellón and W-P. Schill (2014), “Towards Optimal Regulation of Transmission
Network Investment under Renewable Integration,” proceedings of the 10th International
Conference on the European Energy Market (EEM13), IEEE (Institute of Electrical and
Electronics Engineers) Stockholm, Sweden.
3. Egerer, J., J. Rosellón and W-P. Schill (2014), “Power System Transformation towards
Renewables: An Evaluation of Regulatory Approaches for Network Expansion,” The Energy
Journal, accepted for publication.
4. Herrera, L. and J. Rosellón (2014), “On Distributive Effects of Optimal Regulation for Power
Grid Expansion,” Energy Policy, article in press.
5. Kunz, F., K. Neuhoff and J. Rosellón (2014), “Allocation of FTRs to Ease Transition to Nodal
Pricing,” accepted to be presented net June at the Conference on Energy Industry at a
Crossroads: Preparing the Low Carbon Future/TIGER FORUM, 2014, Toulouse, France.
6. Neumann A., J. Rosellón and H. Weigt “Removing Cross-Border Capacity Bottlenecks in the
European Natural Gas Market: A Proposed Merchant-Regulatory Mechanism,” Networks and
Spatial Economics, Springer Verlag, (second) revise and resubmit.
7. Rosellón, J. and T. Kristiansen (eds.), Financial Transmission Rights: Analysis, Experiences
and Prospects, Lecture Notes in Energy 7, Springer Verlag, 2013, ISBN: 978-1-4471-4786-2.
8. Ruiz, E. and J. Rosellón (2012),“Transmission Investment in the Peruvian Electricity Market:
Theory and Applications,” Energy Policy, 45, pp. 238-245.
Project No.: 297852
Period number: Final
Type
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Section B (confidential) - EXPLOITABLE FOREGROUND AND PLANS
FOR EXPLOITATION
This section should specify the exploitable foreground and provide the plans for exploitation. It will be kept
confidential and will be treated as such by the REA and the Commission.
The applications for patents, trademarks, registered designs, etc. shall be listed according to the template B1
provided hereafter.
The list should, specify at least one unique identifier e.g. European Patent application reference. For patent
applications, only if applicable, contributions to standards should be specified.
Not applicable.
Project No.: 297852
Period number: Final
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3. SCIENTIST IN CHARGE QUESTIONNAIRE
RESEARCH TRAINING ASSESSMENT:
What is the size of the hosting research
group?
How many researchers have you supervised,
within the past 10 years? Of which funded by:
EC/Marie Curie actions EC Other Funding
University fellowships
National public bodies
Industry
Other
Other, please specify:
How many researchers have you supervised
within this project?
The size of the department of Energy, Transport and
Environment (EVU) at DIW Berlin is: nineteen
researchers, three research assistants, three PhD
students, and two staff members.
One funded by a Marie Curie action.
Four
Ten
One
One
Corresponding to how many person months?
Number of publications resulting directly
from the research project:
Twenty four months
Eight
Recruited researcher(s) and yourself
Recruited researcher(s) alone
Recruited researcher(s) with authors other
than yourself
Two
One
Thirty six
Participation of the recruited researcher(s) at
conferences (number):
Eleven
Passive
Active
How do you rate the overall success of the
research training?
General assessment:
Eleven
Excellent
The project was carried out in an excellent way
regarding publications and research content. All the
objectives were reached and, even more, avenues for
future research were suggested.
RESEARCHERS ASSESSMENT:
Rate the overall level of the recruited
researcher(s) integration in the research team
and the host organisation with regards to:
participation in meetings/seminars
discussions of results and project-related
topics
co-operation with other team members
co-operation with other researchers of the host
Project No.: 297852
Period number: Final
Very active participation.
Intense discussions of results and topics in each of the
conferences, seminars and day-to-day work.
The researcher of the project coauthored studies with
three researchers of the department of energy,
transport and environment at DIW Berlin. He also
cooperated informally in various events with many
other researchers of the EVU team.
He coauthored papers with two researchers,
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institution
Rate the overall performance of the recruited
researcher(s) with regard to:
capacity to develop new skills and to benefit
from training
productivity (research
results/publications/international conference
attendance)
communication skills
group leader skills (collaboration with other
groups/project management)
training and/or teaching skills
Comment:
informally cooperated with many other researchers at
DIW Berlin (outside EVU), and coauthored other
studies with thirty one researchers from other
institutions.
Excellent.
Excellent.
Excellent.
Excellent.
Excellent.
The researcher of the project (Prof. Rosellón) also
taught a workshop (Enertrain 2013) where he trained
European PhD students on the topics of the project.
RESEARCH TRAINING OUTCOMES:
Has this project provided additional links with
other research groups or institutions?
If yes, indicate the number of contacts in each
case
Universities
Yes.
Germany:
University of Potsdam (Germany), TU Berlin
(Germany), Jacobs University Bremen (Germany),
Friedrich-Alexander-Universität Erlangen-Nünberg
(Germany), University of Munich (Germany), TU
Dresden, TU Cottbus, University of Cologne (EWI).
Europe:
KTH Stockholm (Sweden), University of Basel
(Switzerland), Comillas University (Spain), Tilburg
University (The Netherlands), Université Catholique
de Louvain (Belgium), Florence School of Regulation
(Italy), University of Athens (Greece), University of
Cambridge (UK), Université Paris 1 PanthéonSorbonne (France)
USA:
MIT, Harvard University, University of California
(Berkeley), Johns Hopkins University, Mason School
of Business, University of Texas (Austin), University
of Maryland, Tulane University,
Research Centres
Project No.: 297852
Period number: Final
Elsewhere:
University of Canterbury (New Zealand), Australian
University of New South Wales (Australia),
Australian Energy Regulator (AER, CIDE (Mexico),
Colegio de Mexico (Mexico), National University of
Mexico.
Bruegel (Belgium), Institute for Apllied Ecology
(Oeko) (Germany), CDC Climat Research (France).
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Industry/private companies
Others
If Other, please specify:
Rate the importance of the following outcomes
of the research training:
results of the research
number of publications
development of research
establishment of international collaborations
transfer of knowledge/technology
training of students/researchers
further academic qualifications (PhD,
habilitation etc.) for fellows
Comments:
Maple Analytics (USA), Connect Energy Economics
GmBH (Germany), Dii
GmbH (Germany), SN Power, Norway.
Federal Energy Regulatory Commission (USA),
California ISO (USA).
Regulatory public agencies in the USA.
Extremely relevant. New knowledge on the economics
of regulation and energy economics was generated.
Important policy recommendations were also
suggested
Double as expected.
Excellent.
Outsanding.
At Enertrain 2013, Rosellón taught a workshop on:
“Transmission Expansion and Regulation of
Electricity Networks: Theory and Numerical
Simulations.” Students from Germany (University of
Cologne, TU Dresden, TU Cottbus, Stromnetz
Hamburg) and Belgium (KU Leuven).
One PhD student (Jonas Egerer, TU Berlin), three
Masters students (Ernesto Laguna, Luis A. Herrera
and César A. Bernal, CIDE, Mexico), nine PhD
students at Enertrain 2013.
One PhD student from TU Berlin co-authored two
papers. Three MA students at CIDE (Mexico) finished
their theses on topics of the project (two of them
coauthored a paper). Two research staff EVU
members (Dr. Schill and Dr. Kunz coauthored papers).
One DIW Berlin Research Associate (Prof. Dr.
Neumann) coauthored a paper too.
Many other students at DIW Berlin and TU Berlin
benefited from the transfer of Knowledge of Prof.
Rosellon.
YOUR OPINION ABOUT THE MARIE CURIE ACTIONS:
Comments:
I think the Marie-Curie actions are excellent initiatives to foster research cooperation and transfer of
knowledge to Europe.
Did you have previous knowledge of the Marie Curie actions?
Yes, I once had another researcher that previously had obtained a Marie-Curie IIF fellowship.
If yes, what sort of image do you think that the Marie Curie actions have among the scientific
community in your research area?
I think that Marie-Curie fellows have a very high reputation among the scientific community in your
research area.
Project No.: 297852
Period number: Final
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Attachments
The content of this report has been approved by the researcher and the scientist in charge assigned to this project.
The electronic submission of this report shall replace their signatures.
This declaration was visaed (signed) electronically by Marijke JANSSEN (ECAS user name njanssma) on
Project No.: 297852
Period number: Final