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Decentralised Cross-Border Interconnection

Abstract:
Reaping the full benefits from cross-border interconnection typically requires reinforcement of national networks. When the relevant parts of the networks are complements, a lack of coordination between national transmission system operators results in investment below optimal levels in both interconnectors and national infrastructure. A subsidy to financially sustain interconnector building is not sufficient to restore optimality; indeed, even when possible, such subsidisation may have to be restrained so as not to encourage cross-border capacities that will not be fully utilised due to lack of investment in national systems.

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Keywords: Electrical grid, Interconnector, Externality, Regulation, Regional cooperation

DOI: 10.5547/01956574.44.4.ccra

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Published in Volume 44, Number 4 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

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