Briefings

The Value Proposition for a European Supergrid

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The Value Proposition for a European Supergrid

The concept of a European Supergrid – a network of high-voltage international electricity interconnectors that enable power to be transmitted across Europe – is gaining prominence as a core element of proposals for a decarbonised European power sector.

It would enable energy to be transported from remote locations where renewable sources are plentiful to the demand centres where energy is consumed. It has also been put forward as a valuable tool for electricity system balancing and for resolving the intermittency issues associated with some forms of renewable power.

Beyond climate change, it could also offer important benefits in terms of facilitating efficient energy markets and supporting energy security aims.

However, delivering a European Supergrid is not simply a question of building more wires. It involves connecting power markets across the European Union and its neighbours, and may entail potentially significant implications for the way in which energy is planned, governed and used. To succeed, it will require careful negotiation through the permitting and regulatory systems of dozens of local, regional and national authorities, considerable investment in infrastructure, and potentially wide-ranging alternations to the design of institutions, regulations and markets.

Over the course of 2010, E3G will be addressing these issues through a high-level review of the overall value proposition for the Supergrid. Elements for further examination will include:

Value propositions

Option value: A key advantage of a European Supergrid is the role it could play in creating options for the early decarbonisation of the European power system, without creating a dependence on one particular mix of generation. This is of particular importance given the uncertainty associated with the development and deployment of many key low carbon technologies. It will be important to evaluate the nature and scope of this ‘option value’ for energy decision-making at European and member state level, and how the Supergrid may contribute to managing the risks associated with the transition to a low carbon economy.

The reasonable expectation of the development of a Supergrid will also influence investment decisions at a firm level, as it changes perceptions of market opportunities and competitive advantage and market integration will lead to a shift in price expectations. The role of the Supergrid in altering the parameters of power market investment choices for individual actors will need to be explored.

Market efficiency: There are strong parallels between the idea a European single energy market and the Supergrid concept. Despite a considerable push for a European single energy market for several decades, electricity and gas markets still remain highly fragmented, nationally focused and monopolistic in character. This creates economic inefficiencies and counterproductive locational signals. Greater integration between energy markets could enable greater competition, efficiency and lower energy prices for many consumers, as well as enabling power generation plant to be sited in locations that are cost effective rather than nationally expedient. However, to bring about a single electricity market, more physical capacity for cross-border energy flows are needed, alongside greater integration of market rules. It will be important to map out the extent of the shared agenda between single energy market reforms and Supergrid proposals to determine how co-benefits can be achieved.

Energy security: The development of a European Supergrid could have a major influence on the dynamics of debates about national and European energy security, and this needs to be further explored. A pan-European electricity grid would create new interdependencies: many countries will become more reliant of electricity generated in other EU member states and their neighbours, while energy export opportunities will also develop. However, a pan-European grid would also provide an important buffer against gas supply interruptions and other disruptions to power generation. It may also entail reduced consumption of gas and other fossil fuels in the medium to long term, due to greater integration of renewable energy and reduced need for ‘peak load’ electricity. This, in turn, will have implications for the EU’s relationships with its current energy suppliers, and may also raise questions about potential trade-offs between construction of new gas pipelines and electricity interconnections.

Needs and cost

A number of long term visions for a European Supergrid have been developed, most notably ECF’s Roadmap 2050 project. These overarching views need to be supplemented with a more finely-grained assessment of infrastructure needs and cost for different pathways to 2030, with a view to identifying priority areas for progress. Current momentum in grid development and network development plans will also need to be evaluated to determine whether the required trajectory is likely to be achieved.

Delivery and risks

Historically, the business case for new interconnections has been based on the expected inter-regional flows of electricity based on known generation capacities. This means that the construction of networks often follows that of generation, even though transmission lines often take much longer to be built. However, the size of the Supergrid and the speed in which it would need to be delivered means that a more strategic approach may be needed, alongside coordination between governments, regulators and transmission system operators. With the implementation of the Third Energy Package and a growing orientation towards regional power trading platforms, the institutional context for constructing interconnections is becoming more international but also more complex. A key task will be to evaluate whether the existing arrangements are adequate to ensure a strategic long-term approach to European grids will be developed, and whether new bodies such as ENTSO-E and ACER are sufficiently empowered to enable such a strategic approach to be delivered.

Together with the institutional mechanisms, it will also be important to understand not only the risks that a Supergrid seeks to manage, but also the delivery risks that a pan-European grid may encounter. Some of these are technological – e.g. the potential of inter-regional HVDC lines – while others are more economic, regulatory or political in nature. Particular challenges include: creating mechanisms for appropriately distributing the costs of new interconnections among the beneficiaries; integrating member state energy policy priorities and concerns into a European framework; and developing smarter approaches to permitting and regulation that enable swifter decisions while safeguarding local democratic concerns.

This project focuses specifically on long-distance transmission of electricity, rather than applying new technologies to manage demand and integrate renewables – the ‘Smart Grid’. However the Supergrid and Smart Grid concepts are closely linked, and E3G will be assessing the technological development of Smart Grids in a separate stream of work.

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