How much should we pay for interconnecting electricity markets? A real options approach

An interconnector is an asset that gives the owner the option to transmit electricity between two locations. In financial terms, the value of an interconnector is the same as a strip of real options written on the spread between power prices in two markets. We model the spread based on a: seasonal trend, mean-reverting Gaussian process, and mean-reverting jump process. We express the value of these real options in closed-form. We apply our valuation tool to five pairs of European neighboring markets to value a hypothetical one-year lease of the interconnector. We show valuations for different assumptions about the seasonal component of the spread, and different liquidity caps which proxy for the depth of the interconnected power markets. We derive no-arbitrage lower bounds for the value of the interconnector in terms of electricity futures contracts. We find that, depending on the depth of the market, the jumps in the spread can account for between 1% and 40% of the total value of the interconnector. The two markets where an interconnector would be most (resp. least) valuable are Germany and the Netherlands (resp. France and Germany).Real options, Bull Call Spread, Interconnector, Electricity prices, Jumps, Jump filter

Interconnector Investment for a Well-Functioning Internal Market: What EU regime of regulatory incentives? Bruges European Economic Research (BEER) Papers 18/October 2010

Sufficient cross‐border electricity transmission infrastructure is a pre‐requisite for a functioning European internal market for electricity. Also, the achievement of the EU’s energy policy objectives – sustainability, competitiveness and security of supply – critically depends on adequate investment in physical interconnections between the member states. Mainly focusing on the “regulatory path”, this paper assesses different ways to achieve a sufficient level of interconnector investment. In a first step, economic analysis identifies numerous impediments to interconnector investment adding up to an “interconnector investment failure”. Reflecting on the proper regulatory design of an EU framework able to overcome the interconnector investment failure, a number of recommendations are put forward: All congestion rents should be channeled into interconnector building. Unused rents should be transferred to a European interconnector fund supervised by an EU agency. Even though inherently sub‐optimal, merchant transmission investment can be used as a means to put pressure on regulated transmission system operators (TSO) that do not deliver. An EU agency should have exclusive competence on merchant interconnector exemptions. A European TSO organization should be entrusted with supra‐national network planning, supervised by an EU agency. The agency should decide on investment cost reallocation for interconnector projects that yield strong externalities. Payments could be settled via a European interconnector fund. In case of non‐compliance with the supra‐national network plan, the EU agency should have the right to organize a tender – financed by the European interconnector fund – in order to get the “missing link” built. Assessing the existing EU regulatory framework, the efforts of the 2009 “third energy package” to fill the “regulatory gap” with new EU bodies – ACER and ENTSO‐E – are acknowledged. However, striking holes in regulatory framework are spotted, notably with regard to the use of congestion rents, interconnector cost allocation, and the distribution of decision making powers on new infrastructure exemptions A discussion of the TEN‐E interconnector funding scheme shows that massive funding can be an interim solution to the problem of insufficient interconnection capacities while overcoming the political deadlock on sensible regulatory topics such as interconnector cost allocation. The paper ends with policy recommendations

A market-based transmission planning for HVDC grid—case study of the North Sea

There is significant interest in building HVDC transmission to carry out transnational power exchange and deliver cheaper electricity from renewable energy sources which are located far from the load centers. This paper presents a market-based approach to solve a long-term TEP for meshed VSC-HVDC grids that connect regional markets. This is in general a nonlinear, non-convex large-scale optimization problem with high computational burden, partly due to the many combinations of wind and load that become possible. We developed a two-step iterative algorithm that first selects a subset of operating hours using a clustering technique, and then seeks to maximize the social welfare of all regions and minimize the investment capital of transmission infrastructure subject to technical and economic constraints. The outcome of the optimization is an optimal grid design with a topology and transmission capacities that results in congestion revenue paying off investment by the end the project's economic lifetime. Approximations are made to allow an analytical solution to the problem and demonstrate that an HVDC pricing mechanism can be consistent with an AC counterpart. The model is used to investigate development of the offshore grid in the North Sea. Simulation results are interpreted in economic terms and show the effectiveness of our proposed two-step approach

Do British wind generators behave strategically in response to the Western Link interconnector?

In Britain, the key source of renewable generation is wind, most abundant on the west coast of Scotland, where there is relatively little demand. For this reason, an interconnector, the Western Link, was built to take electricity closer to demand. When the Link is operating, payments by National Grid to constrain wind farms not to produce will be lower, we may predict, since fewer or less restrictive constraints need be imposed. But the Link has not been working consistently. We empirically estimate the link’s value. Focusing on the three most recent episodes of outage, starting on 4th May 2018 up to 25th September 2019, our essential approach is to treat these outages as a natural experiment using hourly data. Our results reveal that the Link had an important role in costs saved and price constrained and MWh curtailed reductions. We estimate a cost-saving of almost £30m. However, the saving appears to drop over time, so we investigate wind farms’ behavior. We find that wind farms behave strategically since the accuracy of wind forecasting depends on the relevant prices impacting their earnings

Development of solar panel system for thermally annealing radiation damaged solar cells Final report

Solar panel system for thermally annealing radiation damaged solar cell

Structural analysis of silicon solar arrays

Engineering mechanics in structural design of silicon solar array

A Multifunctional Processing Board for the Fast Track Trigger of the H1 Experiment

The electron-proton collider HERA is being upgraded to provide higher luminosity from the end of the year 2001. In order to enhance the selectivity on exclusive processes a Fast Track Trigger (FTT) with high momentum resolution is being built for the H1 Collaboration. The FTT will perform a 3-dimensional reconstruction of curved tracks in a magnetic field of 1.1 Tesla down to 100 MeV in transverse momentum. It is able to reconstruct up to 48 tracks within 23 mus in a high track multiplicity environment. The FTT consists of two hardware levels L1, L2 and a third software level. Analog signals of 450 wires are digitized at the first level stage followed by a quick lookup of valid track segment patterns. For the main processing tasks at the second level such as linking, fitting and deciding, a multifunctional processing board has been developed by the ETH Zurich in collaboration with Supercomputing Systems (Zurich). It integrates a high-density FPGA (Altera APEX 20K600E) and four floating point DSPs (Texas Instruments TMS320C6701). This presentation will mainly concentrate on second trigger level hardware aspects and on the implementation of the algorithms used for linking and fitting. Emphasis is especially put on the integrated CAM (content addressable memory) functionality of the FPGA, which is ideally suited for implementing fast search tasks like track segment linking.Comment: 6 pages, 4 figures, submitted to TN

Very long distance connection of gigawatt size offshore wind farms: extra high-voltage ac versus high-voltage dc cost comparison

This study presents a cost comparison between commercially available high-voltage DC (HVDC) and extra high-voltage AC shore connection (±320 kV voltage source converter and 420 kV-50 Hz single-core and three-core cables), for a 1 GW offshore wind farm cluster, considering transmission distances up to 400 km. The HVDC system is a point-to-point connection whereas multiple AC intermediate compensating stations are envisaged for AC when needed. Capital costs are evaluated from recently awarded contracts, operating costs include energy losses and missed revenues due to transmission system unavailability, both estimated using North Sea wind production curves. Optimal AC intermediate compensation, if any, and reactive profiles are also taken into account. Resultsshow that HVDC has lower transmission losses at distances in excess of 130 km; however, due to the combined effect of lower AC capital cost and unavailability, using three-core aluminium cables can be more convenient up to 360 km distance

Electricity transmission: an overview of the current debate

Electricity transmission has emerged as critical for successfully liberalising powermarkets. This paper surveys the issues currently under discussion and provides a framework for the remaining papers in this issue. We conclude that signalling the efficient location of generation investment might require even a competitive LMP system to be complemented with deep connection charges. Although a Europe-wide LMP system is desirable, it appears politically problematic, so an integrated system of market coupling, possibly evolving by voluntary participation, should have high priority. Merchant investors may be able to increase interconnector capacity, although this is not unproblematic and raises new regulatory issues. A key issue that needs further research is how to better incentivize TSOs, especially with respect to cross-border issues