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Determining Optimal Interconnection Capacity on the Basis of Hourly Demand and Supply Functions of Electricity

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  • Jan Horst Keppler
  • William Meunier

Abstract

Interconnections for cross-border electricity trade improve price convergence and welfare. Increased production from variable renewables however implies higher levels of optimal interconnection capacity than in the past. Rather than using scenario building to determine new optimal levels of interconnection capacity, this paper presents a new methodology for Cost-Benefit Analysis (CBA) based on empirical market data, using the French-German electricity trade as an example. Employing a very fine dataset of hourly supply and demand curves (aggregated auction curves) from the EPEX Spot market, it constructs net export (NEC) and net import demand curves (NIDC) for both countries. This allows assessing hourly welfare impacts for incremental capacity and, summed over the year, the annual welfare benefits for each discrete increase in interconnection capacity. Confronting benefits with the annualised costs of increasing interconnection capacity determines the socially optimal increase in interconnection capacity between France and Germany on the basis of empirical market micro-data.

Suggested Citation

  • Jan Horst Keppler & William Meunier, 2018. "Determining Optimal Interconnection Capacity on the Basis of Hourly Demand and Supply Functions of Electricity," The Energy Journal, , vol. 39(3), pages 117-140, May.
    • Handle: RePEc:sae:enejou:v:39:y:2018:i:3:p:117-140
    DOI: 10.5547/01956574.39.3.jkep
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    1. Jan Horst Keppler, Sebastien Phan, and Yannick Le Pen, 2016. "The Impacts of Variable Renewable Production and Market Coupling on the Convergence of French and German Electricity Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
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    Cited by:

    1. Claude Crampes & Nils-Henrik M. von der Fehr, 2023. "Decentralised Cross-Border Interconnection," The Energy Journal, , vol. 44(4), pages 147-169, July.
    2. Jose Juan Caceres-Hernandez & Gloria Martin-Rodriguez & Jonay Hernandez-Martin, 2022. "A proposal for measuring and comparing seasonal variations in hourly economic time series," Empirical Economics, Springer, vol. 62(4), pages 1995-2021, April.
    3. Philip Mayer & Christopher Stephen Ball & Stefan Vögele & Wilhelm Kuckshinrichs & Dirk Rübbelke, 2019. "Analyzing Brexit: Implications for the Electricity System of Great Britain," Energies, MDPI, vol. 12(17), pages 1-27, August.

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