Cost benefit analysis in the context of the energy infrastructure package

Abstract

Each semester the THINK project publishes two research reports based on topics proposed by the European Commission.Topic 10QM-31-12-304-EN-CQM-31-12-304-EN-NThis report was produced as part of the THINK project. 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 this THINK report has been to advise the European Commission (DG Energy) on the development of this method in the context of the Energy Infrastructure Package. 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. We conclude that the method that has been proposed by the European Network of Transmission System Operators for Electricity (ENTSO-E) is an important step in the right direction, but it is still possible to improve. A key recommendation is that the project ranking should be primarily based on the monetized net benefit, and to calculate this net benefit, the CBA should concentrate on a reduced list of effects.The THINK project (2010-2013) is funded by the European Commission under the Seventh Framework Programme, Strategic Energy Technology Plan. (Call FP7-ENERGY-2009-2, Grant Agreement no: 249736). Coordinator: Prof. Jean-Michel Glachant and Dr. Leonardo Meeus, Florence School of Regulation, Robert Schuman Centre for Advanced Studies, European University Institute