• Cost benefit analysis in the context of the Energy Infrastructure Package

      Meeus, Leonardo; von der Fehr, Nils-Henrik M; Azevedo, Isabel; He, X.; Olmos, L.; Glachant, Jean-Michel (2013)
      Cost Benefit Analysis (CBA) has proven to be a useful tool to support the economic appraisal of important projects in many sectors. In the energy domain, a single CBA method has been proposed at EU level to evaluate and compare electricity transmission and storage projects from different countries, which is unprecedented anywhere in the world. - The objective of the 10th report of THINK has been to advise the European Commission (DG Energy) on the development of this method in the context of the Energy Infrastructure Package. This brief is derived from that report. We provide recommendations for the scope of the analysis as well as the calculation of the net benefit. We also discuss how the method can be used to rank projects. - Regarding the scope of the analysis, our recommendations are: (1) interaction between projects must be taken into account in the project and baseline definition; (2) data consistency and quality should be ensured; (3) the conventional time horizon is 20-25 years; (4) CBA should concentrate on a reduced list of effects and those should be monetized; and (5) distributional concerns should not be addressed in the calculation of net benefits. - Regarding the calculation of the net benefit, our recommendations are: (6) infrastructure costs need to be disaggregated; (7) the model used to monetize the production cost savings and gross consumer surplus needs to be explicitly stated; (8) a common discount factor should be used for all projects; and (9) a stochastic approach that is consistent with the Energy Roadmap 2050 should be used to address uncertainty. - Regarding the ranking of projects, our recommendation is: (10) the ranking should be primarily based on the monetized net benefit. - ENTSO-E has already proposed a draft method for electricity projects. We will analyse to what extent this method is in line with our recommendations and will conclude that it is an important step in the right direction. However, improvements could still be made, as proposed in this brief.
    • Decarbonizing the European electric power sector by 2050: A tale of three studies

      Delarue, Erik; Meeus, Leonardo; Belmans, Ronnie; D'haeseleer, William; Glachant, Jean-Michel (2011)
      If Europe is serious about climate change, it has to reduce its overall greenhouse gas emissions by 80% by 2050, thereby effectively going to a (near-) zero carbon energy and thus, electricity system. The European Climate Foundation, Eurelectric, and the International Energy Agency have consequently published a study elaborating on the final goal of this transition. The studies project scenarios of how such a (near-) zero electricity system would look like and provide recommendations on the policies needed to guide the transition. In this paper, we observe that these studies tell a tale with many similarities. In spite of increased energy efficiency, the electricity demand is projected to increase substantially, with up to 50% from today towards 2050, due to shifts from other sectors towards electricity. This demand will be supplied by a minimum of 40% electricity generation by RES, with the remainder being filled up with nuclear and fossils with CCS. The importance of grid reinforcement, expansion, and planning in this context is emphasized in all three studies. While all three studies further recommend relying on the EU ETS for the transition, the European Climate Foundation and the International Energy Agency consider continuing with targets for RES in combination with a more harmonized EU RES support scheme.
    • Emerging regulatory practice for new business related to distribution grids

      Meeus, Leonardo; Hadush, Samson Yemane (2016)
      Highlights: Activities related to new businesses, such as market facilitation (e.g. data hub operation), electrical storage, and electric vehicle- charging infrastructure are grey areas in regulation; In these grey areas, there is potential for a market approach, but there are also conditions which can prompt the involvement of DSOs; By taking stock of the emerging regulatory practice, we have identified the main elements that regulators need to consider when moving into these grey areas; If the approach is market based, the regulator needs to design the market; and check whether there is a need to correct market failures. To involve the DSOs is one way, but not the only way, to correct the market failures for new businesses; If the approach is to engage with the DSOs, the role of the regulator is to define the scope of the DSO involvement; to consider dedicated quality of service regulations for each of the new businesses that the DSO is involved in; and to make sure that the DSOs have sufficient incentives to innovate when investing in new businesses; The role of the DSOs in the energy value chain is diverging in Europe, which might be an issue for the ongoing market integration.
    • EU 2050 low-carbon energy future: visions and strategies

      Meeus, Leonardo; Azevedo, Isabel; Marcantonini, Claudio; Glachant, Jean-Michel; Hafner, Manfred (2011)
    • Implicit auctioning on the Kontek Cable: third time lucky?

      Meeus, Leonardo (2010)
      Cross-border capacities in Europe are currently inefficiently used. Implicit auctioning is about eliminating these cross-border trade inefficiencies by internalizing the arbitrage into the auction procedures of the Power Exchanges that are organizing trade nationally. On the Kontek Cable, implicit auctioning has been implemented without price coordination between the involved Power Exchanges. This implementation, referred to as “volume or dome coupling” as opposed to “price coupling”, has been argued to be institutionally easier to implement. The Kontek Cable experimented with three different implicit auctioning implementations whose performance we analyze empirically in this paper. We find that the third implementation is significantly outperforming the previous two implementations, but in this third implementation stakeholders partly abandoned the volume coupling approach they initially believed to be a viable alternative to price coupling.
    • Modeling the cost of achieving a renewable energy target: does it pay to cooperate across borders?

      Saguan, Marcelo; Meeus, Leonardo (2011)
      Electricity markets are increasingly integrated across borders, but transmission and renewable energy policies often remain local and uncoordinated. In this paper, we analyze how cooperative behavior in developing renewable energy technologies across borders and/or cross-border transmission capacity investment can reduce the cost of achieving a renewable energy target. We use a three step equilibrium model with: i) transmission investment, ii) generation investment and iii) electricity market that we apply to an interconnected two zone system. We find that it pays to cooperate if the zones have different renewable energy sources, but the success of a renewable energy cooperation also depends on cooperation in transmission development, which is therefore an important interaction to take into account in renewable energy policy discussions.
    • Review of transmission tariff methods and practices in Europe

      Hadush, Samson Yemane; Buijs, P.; Belmans, Ronnie (2010)
    • Smart cities initiative: how to foster a quick transition towards local sustainable energy systems

      Meeus, Leonardo; Delarue, Erik; Azevedo, Isabel; Glachant, Jean-Michel; Leal, V.; de oliveira Fernandes, E. (2010)
      The European Commission has recently launched the Smart Cities Initiative to demonstrate and disseminate how to foster a quick transition towards local sustainable energy systems. Within this initiative, the three main challenges faced by pioneering cities, are to reduce or modify the demand for energy services, to improve the uptake of energy efficient technologies and to improve the uptake of renewables in the urban environment. We find that enough resources will need to be provided to a significant number of pioneering cities, and propose that the initiative would allocate these resources through project competition, rewarding innovation, ambition and performance, which have been ingredients of success at Member State level.
    • Smart regulation for smart grids

      Meeus, Leonardo; Saguan, Marcelo; Glachant, Jean-Michel; Belmans, Ronnie (2010)
      The European Union set ambitious objectives for the year 2020 in terms of increase of renewable generation, energy savings and reduction of GHG emissions. These objectives lead Europe towards a complete decarbonisation of the electricity system. There is a key role to be played by grids in facilitating the required transformation and this implies they need to become “smart”. In practical terms, making grids smart means deepening the energy system integration and grid users participation. Grids have to reconfigure notably for the integration of distributed generation (DG), the integration of massive large-scale renewable (RES), and for the integration of facilitating demand response. Smarter grids need a smarter regulation. A smart regulation reconfigures the incentives and coordination tools of grid companies and grid users and aligns them towards the new policy objectives. Some of the incentives provided to grid companies and grid users by the existing regulation must be corrected and some additional mechanisms must be conceived and experienced.
    • Standing still is moving backward for the ABC of the CBA

      Keyaerts, Nico; Schittekatte, Tim; Meeus, Leonardo (2016)
      Developments in both gas and electricity are fast moving with higher risks for stranded assets in Trans-European Networks. This puts increasingly higher demands on the CBA method that is used to select priority investments. Standing still in the development of that method would be going backward. The ABC of the CBA for so-called Projects of Common Interest (PCIs) is about: A. dealing with interactions between PCIs (coordination); B. gaining trust and public acceptance (transparency); and C. deciding where the experts stop and the politics start in the valuation of PCIs (monetisation). To deal with the interactions between PCIs, we recommend additional improvements to the clustering of projects and the baseline definition in the common CBA method; and we also recognise that individual project promoters might lack the information and resources to do this, which is why we suggest that this could become a task for the ENTSOs or Regional Groups instead of the promoters. To gain trust and public acceptance, we recommend harmonised and disaggregated cost and benefit reporting, noting that we still have a long way to go, and noting that this is not even enough because the ambition should be an open source CBA model rather than a common method. To reduce the politics, we emphasise the importance of a full monetisation of the value of PCIs, and note that we could ask the Regional Groups to express their policy priorities at the start of the process via the eligibility criteria, which would also increase the transparency of the process.
    • The role of the EU and ACER to ensure an adequate regulatory framework from projects of common interest

      Meeus, Leonardo; Keyaerts, Nico (2014)
      Projects of common interest are important high-value projects for achieving EU energy and climate policy objectives. To the extent that these projects have higher risks, we need to make sure that the regulatory frameworks also incentivize investment at the high end of the risk spectrum. • In this brief we discuss whether an adequate framework for projects of common interest implies moving towards a dedicated regulatory framework, concluding that this is not necessarily necessary. • Some Member States might prefer to apply their default regulatory framework to projects of common interest. This approach avoids the additional costs of administering another framework. However, the conventional default framework provides the same return for all infrastructure investment, implying a risk of underpaying for high-risk investment and overpaying for low-risk investment. • Other Member States might prefer to apply a dedicated regulatory framework for important infrastructure investment to projects of common interest. These dedicated frameworks allow dealing with underpaying for important investment as well as mitigating the risk of overpaying by adjusting incentives to the value and risk of a project. • In both cases, the EU and ACER have important roles to play in ensuring that the regulatory framework applying to projects of common interest is adequate. Their roles could include assessing the applicable frameworks, assisting NRAs with multi-jurisdictional coordination, ensuring dedicated frameworks for investment of national importance apply also to projects of common interest, and assisting NRAs on a voluntary basis with performing case-by-case assessments.
    • Who will lead the energy market in 2030?

      Momber, Ilan; Tackx, Koen; Hadush, Samson Yemane; Meeus, Leonardo (2015)
      There are many uncertainties that might determine the future of the energy industry in general and the landscape of network operation in particular. According to the Vlerick Energy Centre together with a team of European industry leaders two of these uncertainties call for deeper analysis as they are more relevant and most likely game changers for the power grid industry: consumer involvement and decentralised generation. Depending on the level of consumer involvement in energy choices and the amount of decentralisation of the energy resources four scenarios were developed on how the energy market in Europe could look like in 2030. The co-creation process was supervised by Prof Paul Schoemaker, the world-leading scenario-planning expert from Wharton School.
    • Why (and how) to regulate Power Exchanges in the EU market integration context?

      Meeus, Leonardo (2010)
      Power Exchanges (PXs) are key market institutions in open and market-based electricity industries. This paper aims at contributing to the ongoing debate on why and how to regulate Power Exchanges in the EU market integration context. The paper starts by stating that two different types of PXs have to be distinguished, i.e. “Merchant” PXs and the “Cost of Service Regulated” PXs. The paper continues by comparing the typical incentives of these two types of PXs to perform the basic PX tasks in an isolated national market and in a market integration context. The paper concludes by deriving from this analytical frame the most relevant regulatory actions.