IDEAS home Printed from https://ideas.repec.org/a/eee/energy/v82y2015icp128-137.html
   My bibliography  Save this article

Assessing the value of power interconnections under climate and natural gas price risks

Author

Listed:
  • Pineau, P.-O.
  • Dupuis, D.J.
  • Cenesizoglu, T.

Abstract

The value of transmission capacity is hard to assess due to the presence of different issues: physics of power networks, economics of power systems and reliability criteria. Evolving supply and demand trends, however, create interest in increased transmission capacity, especially between jurisdictions with complementarities. Assessing the value of such interconnections is key in analyzing the viability of these projects. Based on a data set containing 10 years of hourly power flows and prices, daily temperature and natural gas prices, as well as climate change forecasts for 2020 and 2050, we simulate export revenues for a DC (direct current) interconnection between Quebec (Canada) and New York (US) under different natural gas price scenarios and extreme heat events. Our innovative approach, combined with an extensive data set, provides a prospective assessment of the value of new transmission projects. Our results suggest that future natural gas prices would be the main driving factor of future revenues on a transmission line, with climate change having a relatively much smaller impact on future revenues.

Suggested Citation

  • Pineau, P.-O. & Dupuis, D.J. & Cenesizoglu, T., 2015. "Assessing the value of power interconnections under climate and natural gas price risks," Energy, Elsevier, vol. 82(C), pages 128-137.
    • Handle: RePEc:eee:energy:v:82:y:2015:i:c:p:128-137
    DOI: 10.1016/j.energy.2014.12.078
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0360544215000249
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.energy.2014.12.078?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Paul Joskow & Jean Tirole, 2005. "Merchant Transmission Investment," Journal of Industrial Economics, Wiley Blackwell, vol. 53(2), pages 233-264, June.
    2. Doorman, Gerard L. & Frøystad, Dag Martin, 2013. "The economic impacts of a submarine HVDC interconnection between Norway and Great Britain," Energy Policy, Elsevier, vol. 60(C), pages 334-344.
    3. Edmunds, R.K. & Cockerill, T.T. & Foxon, T.J. & Ingham, D.B. & Pourkashanian, M., 2014. "Technical benefits of energy storage and electricity interconnections in future British power systems," Energy, Elsevier, vol. 70(C), pages 577-587.
    4. Mideksa, Torben K. & Kallbekken, Steffen, 2010. "The impact of climate change on the electricity market: A review," Energy Policy, Elsevier, vol. 38(7), pages 3579-3585, July.
    5. Andrew Kleit & James Reitzes, 2008. "The effectiveness of FERC’s transmission policy: is transmission used efficiently and when is it scarce?," Journal of Regulatory Economics, Springer, vol. 34(1), pages 1-26, August.
    6. Wu, F.F & Zheng, F.L. & Wen, F.S., 2006. "Transmission investment and expansion planning in a restructured electricity market," Energy, Elsevier, vol. 31(6), pages 954-966.
    7. Severin Borenstein & James. Bushnell & Steven Stoft, 2000. "The Competitive Effects of Transmission Capacity in A Deregulated Electricity Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 294-325, Summer.
    8. AfDB AfDB, . "Annual Report 2012," Annual Report, African Development Bank, number 461.
    9. Rolf Golombek & Sverre Kittelsen & Ingjerd Haddeland, 2012. "Climate change: impacts on electricity markets in Western Europe," Climatic Change, Springer, vol. 113(2), pages 357-370, July.
    10. Maximilian Auffhammer & Anin Aroonruengsawat, 2011. "Simulating the impacts of climate change, prices and population on California’s residential electricity consumption," Climatic Change, Springer, vol. 109(1), pages 191-210, December.
    11. Kishore, T.S. & Singal, S.K., 2014. "Optimal economic planning of power transmission lines: A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 39(C), pages 949-974.
    12. Stephen Littlechild, 2012. "Merchant and regulated transmission: theory, evidence and policy," Journal of Regulatory Economics, Springer, vol. 42(3), pages 308-335, December.
    13. Kleit, Andrew N. & Reitzes, James D., 2006. "Estimating the Economic "Trade" Value of Increased Transmission Capability," The Electricity Journal, Elsevier, vol. 19(2), pages 69-78, March.
    14. Doucet, Joseph & Kleit, Andrew & Fikirdanis, Serkan, 2013. "Valuing electricity transmission: The case of Alberta," Energy Economics, Elsevier, vol. 36(C), pages 396-404.
    15. Bresesti, Paola & Calisti, Roberto & Cazzol, Maria Vittoria & Gatti, Antonio & Provenzano, Dario & Vaiani, Andrea & Vailati, Riccardo, 2009. "The benefits of transmission expansions in the competitive electricity markets," Energy, Elsevier, vol. 34(3), pages 274-280.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Saldarriaga-C., Carlos A. & Salazar, Harold, 2016. "Security of the Colombian energy supply: The need for liquefied natural gas regasification terminals for power and natural gas sectors," Energy, Elsevier, vol. 100(C), pages 349-362.
    2. Koltsaklis, Nikolaos E. & Dagoumas, Athanasios S., 2018. "State-of-the-art generation expansion planning: A review," Applied Energy, Elsevier, vol. 230(C), pages 563-589.
    3. Koltsaklis, Nikolaos E. & Dagoumas, Athanasios S. & Georgiadis, Michael C. & Papaioannou, George & Dikaiakos, Christos, 2016. "A mid-term, market-based power systems planning model," Applied Energy, Elsevier, vol. 179(C), pages 17-35.
    4. Wang, Tiantian & Zhang, Dayong & Ji, Qiang & Shi, Xunpeng, 2020. "Market reforms and determinants of import natural gas prices in China," Energy, Elsevier, vol. 196(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Clemens Gerbaulet & Alexander Weber, 2014. "Is There Still a Case for Merchant Interconnectors?: Insights from an Analysis of Welfare and Distributional Aspects of Options for Network Expansion in the Baltic Sea Region," Discussion Papers of DIW Berlin 1404, DIW Berlin, German Institute for Economic Research.
    2. Chao, Hung-po & Wilson, Robert, 2020. "Coordination of electricity transmission and generation investments," Energy Economics, Elsevier, vol. 86(C).
    3. Gerbaulet, C. & Weber, A., 2018. "When regulators do not agree: Are merchant interconnectors an option? Insights from an analysis of options for network expansion in the Baltic Sea region," Energy Policy, Elsevier, vol. 117(C), pages 228-246.
    4. Doucet, Joseph & Kleit, Andrew & Fikirdanis, Serkan, 2013. "Valuing electricity transmission: The case of Alberta," Energy Economics, Elsevier, vol. 36(C), pages 396-404.
    5. Kristiansen, T. & Rosellón, J., 2010. "Merchant electricity transmission expansion: A European case study," Energy, Elsevier, vol. 35(10), pages 4107-4115.
    6. Antweiler, Werner, 2016. "Cross-border trade in electricity," Journal of International Economics, Elsevier, vol. 101(C), pages 42-51.
    7. Thomas-Olivier Léautier & Véronique Thelen, 2009. "Optimal expansion of the power transmission grid: why not?," Journal of Regulatory Economics, Springer, vol. 36(2), pages 127-153, October.
    8. Li, Yanfei & Chang, Youngho, 2015. "Infrastructure investments for power trade and transmission in ASEAN+2: Costs, benefits, long-term contracts and prioritized developments," Energy Economics, Elsevier, vol. 51(C), pages 484-492.
    9. Teotónio, Carla & Fortes, Patrícia & Roebeling, Peter & Rodriguez, Miguel & Robaina-Alves, Margarita, 2017. "Assessing the impacts of climate change on hydropower generation and the power sector in Portugal: A partial equilibrium approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 74(C), pages 788-799.
    10. E. Anderson & A. Philpott & H. Xu, 2007. "Modelling the effects of interconnection between electricity markets subject to uncertainty," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 65(1), pages 1-26, February.
    11. Rangel, Luiz Fernando, 2008. "Competition policy and regulation in hydro-dominated electricity markets," Energy Policy, Elsevier, vol. 36(4), pages 1292-1302, April.
    12. Sara Lumbreras & Jesús David Gómez & Erik Francisco Alvarez & Sebastien Huclin, 2022. "The Human Factor in Transmission Network Expansion Planning: The Grid That a Sustainable Energy System Needs," Sustainability, MDPI, vol. 14(11), pages 1-22, May.
    13. Cuihui Xia & Tandong Yao & Weicai Wang & Wentao Hu, 2022. "Effect of Climate on Residential Electricity Consumption: A Data-Driven Approach," Energies, MDPI, vol. 15(9), pages 1-20, May.
    14. Mari Makkonen, Mats Nilsson and Satu Viljainen, 2015. "All quiet on the western front? Transmission capacity development in the Nordic electricity market," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    15. Pringles, Rolando & Olsina, Fernando & Garcés, Francisco, 2014. "Designing regulatory frameworks for merchant transmission investments by real options analysis," Energy Policy, Elsevier, vol. 67(C), pages 272-280.
    16. Juan Rosellón, Ingo Vogelsang, and Hannes Weigt, 2012. "Long-run Cost Functions for Electricity Transmission," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    17. Pechan, Anna & Eisenack, Klaus, 2014. "The impact of heat waves on electricity spot markets," Energy Economics, Elsevier, vol. 43(C), pages 63-71.
    18. Boffa, Federico & Pingali, Viswanath & Sala, Francesca, 2015. "Strategic investment in merchant transmission: The impact of capacity utilization rules," Energy Policy, Elsevier, vol. 85(C), pages 455-463.
    19. repec:ags:aaea16:235739 is not listed on IDEAS
    20. Malaguzzi Valeri, Laura, 2009. "Welfare and competition effects of electricity interconnection between Ireland and Great Britain," Energy Policy, Elsevier, vol. 37(11), pages 4679-4688, November.
    21. Lee, Gi-Eu, 2016. "Temperature Effects are more Complex than Degrees: A Case Study on Residential Energy Consumption," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 242285, Agricultural and Applied Economics Association.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:energy:v:82:y:2015:i:c:p:128-137. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/energy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.