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Energy Journal Issue

The Energy Journal
Volume 37, Sustainable Infrastructure Development and Cross-Border Coordination

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Christian von Hirschhausen and Claudia Kemfert

DOI: https://doi.org/10.5547/01956574.37.SI3.cvon
No Abstract

Stochastic Modeling of Natural Gas Infrastructure Development in Europe under Demand Uncertainty

Marte Fodstad, Ruud Egging, Kjetil Midthun, and Asgeir Tomasgard

DOI: https://doi.org/10.5547/01956574.37.SI3.mfod
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We present an analysis of the optimal development of natural gas infrastructure in Europe based on the scenario studies of Holz and von Hirschhausen (2013). We use a stochastic mixed integer quadratic model to analyze the impact of uncertainty about future natural gas consumption in Europe on optimal investments in pipelines. Our data is based on results from the PRIMES model of natural gas demand and technology scenarios discussed in Knopf et al. (2013). We present a comparison between the results from the stochastic model and the expected value model, as well as an analysis of the individual scenarios. We also performed sensitivity analyses on the probabilities of the future scenarios. Comparison of the results from the stochastic model to those of a deterministic expected value model reveals a negligible Value of the Stochastic Solution. We do, however, find structurally different infrastructure solutions in the stochastic and the deterministic models. Regarding infrastructure expansions, we find that 1) the largest pipeline investments will be towards Asia, 2) there is a trend towards a larger gas supply from Africa to Europe, and 3) within Europe, eastward connections will be strengthened. Our main finding using the stochastic approach is that there is limited option value in delaying investments in natural gas infrastructure, until more information is available regarding policy and technology in 2020, due to the low costs of overcapacity.

The Role of Natural Gas in a Low-Carbon Europe: Infrastructure and Supply Security

Franziska Holz, Philipp M. Richter, and Ruud Egging

DOI: https://doi.org/10.5547/01956574.37.SI3.fhol
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In this paper, we analyse infrastructure needs of the European natural gas market in response to decarbonisation of the European energy system. To this end, we use numerical modelling and apply the Global Gas Model. We investigate three pathways of future natural gas consumption: i) a decreasing natural gas consumption, following the scenarios of the EU Energy Roadmap 2050; ii) a moderate increase of natural gas consumption, along the lines of the IEA's New Policies Scenario; and iii) a temporary increase of natural gas use as a "bridge" technology, followed by a strong decrease after 2030. Our results show that current import infrastructure and intra-European transit capacity are sufficient to accommodate future import needs in all scenarios. This is despite a pronounced reduction of domestic production and a strong increase in import dependency. However, due to strong demand in Asia, Europe must increasingly rely on exports from Africa and the Caspian region, leading to new infrastructure capacity from these regions. When natural gas serves as a "bridge" technology, short-term utilisation rates of LNG import capacity temporarily increase instead of instigating large scale pipeline expansions.

A Top-Down Approach to Evaluating Cross-Border Natural Gas Infrastructure Projects in Europe

András Kiss, Adrienn Selei, and Borbála Takácsné Tóth

DOI: https://doi.org/10.5547/01956574.37.SI3.akis
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There is an ongoing policy debate in Europe about how to select natural gas infrastructure projects for an EU-wide investment support scheme. We contribute to this debate by introducing a model-based project evaluation method that addresses several shortcomings of the current approach and demonstrate its application on a set of shortlisted investment proposals in Central and South Eastern Europe. Importantly, our selection mechanism deals with the complementarity and the substitutability of new pipelines. We find that a small number of projects are sufficient to maximize the net gain in regional welfare, but different baseline assumptions favor different project combinations. We also explore the consequences of Russian gas permanently delivered at the EU border from northern and southern routes that bypass Ukraine and find modest negative welfare effects.

Coordinating Cross-Country Congestion Management: Evidence from Central Europe

Friedrich Kunz and Alexander Zerrahn

DOI: https://doi.org/10.5547/01956574.37.SI3.fkun
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We employ a detailed two-stage model to simulate the operation of the Central Eastern European electricity market and network. Implementing different cases of coordination in congestion management between national transmission system operators, numerical results show the beneficial impact of closer cooperation. Specific steps comprise the sharing of network and dispatch information, cross-border counter-trading, and multilateral redispatch in a flow-based congestion management framework. Efficiency gains are accompanied by distributional effects. Closer economic cooperation becomes especially relevant against the background of changing spatial generation patterns, deeper international integration of national systems, and spillovers of national developments to adjacent systems.

European Electricity Grid Infrastructure Expansion in a 2050 Context

Jonas Egerer, Clemens Gerbaulet, and Casimir Lorenz

DOI: https://doi.org/10.5547/01956574.37.SI3.jege
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This paper analyzes the development of the European electricity transmission network for different policy scenarios at the horizon 2050. We apply a bottom-up techno-economic electricity sector model to determine transformation scenarios of the European electricity sector. It has a very detailed spatial disaggregation that allows for a fine representation of domestic and international electricity flows and transmission expansion. The cost-minimizing mixed-integer model calculates investments for time steps of ten years. The model results indicate that network requirements are lower than generally assumed. The largest share are domestic upgrades, rather than country interconnectors. Most investments (20bn EUR) occur in the near future, by 2030 the latest. Only the high-mitigation scenarios require large additional network investments. The timing and location of investments differ, depending on generation scenarios and cost assumptions for inter-connectors. The results indicate that carbon emission reduction targets alone provide insufficient information for long-term network planning.

The Short and Long Term Impact of Europe’s Natural Gas Market on Electricity Markets until 2050

Jan Abrell and Hannes Weigt

DOI: https://doi.org/10.5547/01956574.37.SI3.jabr
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The interdependence of electricity and natural gas is becoming a major energy policy and regulatory issue in all jurisdictions around the world. The increased role of gas fired plants in renewable-based electricity markets and the dependence on natural gas imports make this issue particular important for the European energy market. In this paper we provide a comprehensive combined analysis of electricity and natural gas infrastructure with an applied focus: We analyze three different scenarios of the long-term European decarbonization pathways, and analyze the interrelation between electricity and natural gas markets on investments in the long run and spatial aspects in the short run.

Renewable Energy Support, Negative Prices, and Real-time Pricing

Michael Pahle, Wolf-Peter Schill, Christian Gambardella, and Oliver Tietjen

DOI: https://doi.org/10.5547/01956574.37.SI3.mpah
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We analyze the welfare effects of two different renewable support schemes designed to achieve a given target for the share of fluctuating renewable electricity generation: a feed-in premium (FiP), which can induce negative wholesale prices, and a capacity premium (CP), which does not. For doing so we use a stylized economic model that differentiates between real-time and flat-rate pricing and is loosely calibrated on German market data. Counter-intuitively, we find that distortions through induced negative prices do not reduce the net consumer surplus of the FiP relative to the CP. Rather, the FiP performs better under all assumptions considered. The reason is that increased use of renewables under the FiP, particularly in periods of negative prices, leads to a reduction of required renewable capacity and respective costs. This effect dominates larger deadweight losses of consumer surplus generated by the FiP compared to the CP. Furthermore, surplus gains experienced by consumers who switch from flat-rate to real-time pricing are markedly higher under the FiP, which might be interpreted as greater incentives to enable such switching. While our findings are primarily of theoretical nature and the full range of implications of negative prices needs to be carefully considered, we hope that our analysis makes policy-makers more considerate of their potential benefits.

European Scenarios of CO2 Infrastructure Investment until 2050

Pao-Yu Oei and Roman Mendelevitch

DOI: https://doi.org/10.5547/01956574.37.SI3.poei
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Based on a review of the current state of the Carbon Capture, Transport and Storage (CCTS) technology, this paper analyzes the layout and costs of a potential CO2 infrastructure in Europe at the horizon of 2050. We apply the mixed-integer model CCTS-Mod to compute a CCTS infrastructure network for Europe, examining the effects of different CO2 price paths with different regional foci. Scenarios assuming low CO2 certificate prices lead to hardly any CCTS development in Europe. The iron and steel sector starts deployment once the CO2 certificate prices exceed 50 €/tCO2. The cement sector starts investing at a threshold of 75 €/tCO2, followed by the electricity sector when prices exceed 100 €/tCO2. The degree of CCTS deployment is found to be more sensitive to variable costs of CO2 capture than to investment costs. Additional revenues generated from utilizing CO2 for enhanced oil recovery (CO2-EOR) in the North Sea would lead to an earlier adoption of CCTS, independent of the CO2 certificate price; this case may become especially relevant for the UK, Norway and the Netherlands. However, scattered CCTS deployment increases unit cost of transport and storage infrastructure by 30% or more.