Cross-border Electricity Trade Research Articles

Electricity cooperation in South Asia: Barriers to cross-border trade

The South Asia Region (SAR) continues to face electricity shortages, underinvestment and challenges to improve energy access. Strengthening cooperation for cross-border electricity trade in South Asia makes it possible for the region to take advantage of significant benefits from greater regional coordination in capacity investments. Trade can complement domestic investment to increase the availability and reliability of supply, bringing economies of scale in investments and more cost-effective expansion of renewable electricity. Efforts to expand cross-border electricity cooperation and trade in SAR need to address not only regional barriers, but also barriers stemming from domestic electricity sector policies in the region. Expanding the scope of bilateral electricity cooperation in the short- and medium-term, and especially opening up to commercial as well as government-to-government projects, can build confidence in the process of cross-border trade and the potential benefits it can provide. The longer-term desirable goal is emergence of a well-functioning regional market for electricity, supported by a regional organization or forum for cross-country coordination.

Trade-offs between integration and isolation in Switzerland's energy policy

In response to the Fukushima nuclear accident, Switzerland has targeted to phase out nuclear power by 2050. Two diametrically opposite pathways to accomplish Switzerland's nuclear phase-out are quantitatively investigated for the year 2035 using a novel high-resolution power systems simulation framework. The first pathway, “Island in Europe”, installs new natural gas power plants to ensure a self-sufficient Swiss energy system. The second pathway, “Battery of Europe”, increases Switzerland's engagement with central Europe with new pumped hydro storages and increased cross-border electricity trade of European renewable energy. The results show that the “Battery of Europe” scenario enables a threefold increase in financial surplus of cross-border electricity trade compared to the “Island in Europe” scenario. This surplus translates to 15–23% lower domestic Swiss electricity prices, thereby enhancing the competitiveness of the Swiss marketplace; however, Switzerland is then exposed to more technical and political engagement with its neighbours. Additionally, successful implementation of the “Battery of Europe” scenario requires reinforcing 5% of the Swiss transmission grid, which necessitates more streamlined legal processes for new transmission infrastructure. Along a different political dimension, electricity price reductions of up to 22% are possible if the targeted increase of efficiency in Switzerland's energy policy is accomplished.

Reflections on SAARC Framework Agreement for Energy Cooperation (Electricity) Vis-a-vis India’s “Guidelines on Cross Border Trade of Electricity”

Despite the Indo-Nepal Electric Power Trade, Cross Border Transmission and Grid Connectivity Agreement of October 2014 and despite the SAARC Framework Agreement on Energy Cooperation (Electricity) of November 2014, the Government of India issued the discriminatory Guidelines on Cross Border Trade of Electricity on December 5, 2016. The Guidelines provide preferential one-time approval for all entities with 51% or more Indian ownership wishing to export electricity from Nepal to India. All other entities, the Guidelines stated, had to undergo the case-to-case basis. Historically, such unilateral actions have always been the modus operandi of India. Despite the regular regional cooperation preaching by India, Nepal will have to, like the Tanakpur and Laxmanpur barrages, BUT accept India’s discriminatory December 2016 Guidelines as her fait accompli! HYDRO Nepal JournalJournal of Water Energy and EnvironmentIssue No: 22Page: 1-4Uploaded date: January 14, 2018

Optimal scheduling of interconnected power systems

This paper presents an optimization-based approach to address the problem of the optimal daily energy scheduling of interconnected power systems in electricity markets. More specifically, a Mixed Integer Linear Programming model (MILP) has been developed to address the specific challenges of the underlying problem. The main focus of the proposed framework is to examine the importance and the impacts of electricity interconnections and cross-border electricity trade on the scheduling of power systems, both at a technical and economic level. The applicability of the proposed approach has been tested on an illustrative case study including five power systems which can be interconnected (with a certain interconnection structure) or not. The proposed model determines in a detailed and analytical way the optimal power generation mix, the electricity trade among the systems, the electricity flows (in case of interconnection options), the marginal price of each system, as well as it investigates through a sensitivity analysis the effects of the available interconnection capacity on the resulting power production mix. The work demonstrates that the proposed optimization approach is able to provide important insights into the appropriate energy strategies followed by the market participants, as well as on the strategic long-term decisions to be implemented by investors and/or policy makers at a national and/or regional level, underlining potential risks and providing appropriate price signals on critical energy infrastructure projects under real market operating conditions.

An Optimization Analysis of Cross-border Electricity Trading between Afghanistan and its Neighbor Countries

Abstract A landlocked country, Afghanistan, located between energy surplus regions and energy deficit areas is blessed with abundant renewable energy sources (RESs) which can exploit not only to cover its power demand but also to earn remarkable export revenue. This paper focuses on generation scheduling problem along with the optimal sizing of the hybrid renewable energy system (HRES) integrated with the northeast power system (NEPS) of Afghanistan to electrify northeast region of Afghanistan as well as to meet power shortages of Afghanistan’s longest shared border neighbor, Pakistan. The NEPS of Afghanistan is an isolated power system supplied by Afghanistan’s own generations and imported powers from Uzbekistan and Tajikistan. Genetic Algorithm (GA) is used to schedule all units’ output power as well as to find the on/off status of thermal units and the optimal values of the total area occupied by the set of photovoltaic (PV) panels, total swept area by the rotating turbines’ blades and the volume of the upper reservoir of pumped hydro energy storage (PHES) system. The objective of this research is to minimize the total operation cost of thermal units, aggregate imports power tariffs, and the total net present cost of HRES and to maximize the income from selling electricity to Pakistan.

Electricity Interconnection and Trade between Norway and Russia

Anticipated industrial growth in northern Norway, particularly of energy intensive industries such as hydrocarbons and mining, will inevitably result in increased electricity consumption. Northern Norway faces security of supply challenges, and substantial investments are needed in generation, transmission and distribution capacity in order to meet the growing electricity demand. This makes it advantageous to reinforce the existing cross-border electricity infrastructure and trade between Norway and Russia. Cross-border interconnections however are complex, and the controversial debate over Norway’s position on nuclear power in the Kola Peninsula has created public and political opposition that could permanently hinder interconnection expansion plans. This article provides an outline of the existing electricity interconnection and trade between Norway and Russia and examines the potential for reinforcing those arrangements, as well as the concomitant social, political and legal challenges. It argues that in spite of nuclear power controversies, there is still room for expanding the existing interconnection and electricity trade in view of opportunities for the development of other renewable resources in Russia.

Power trade, welfare, and air quality

We use detailed microdata from all generators in the Ontario wholesale electricity market to investigate cross-border electricity trade and its impact on air emissions and welfare (consumer and producer surpluses) in Ontario. Using the technical characteristics of the generators and financial data we run a competition model every hour. We examine how trade expansion across different parts of the interconnected power grid affects the efficiency in the Ontario market. We show that there is a significant welfare gain from power trade. The air emissions savings are also considerable. For instance, when hourly imports double from current levels CO2 emissions decrease around 13%, and market prices reduce 5.4%. In autarky, CO2, SO2, NOx emissions increase 12%, 22%, 16%, resp., the prices go up 5.8%, and the price volatility rises 12%. However, the impact of negative wholesale prices on market outcomes is small.

Free Movement of Electricity and the Revival of System Stability Justifications

EU Member States have in recent years designed national schemes to support the development of renewable energy. For example, in systems of feed-in-tariffs the states guarantee for a given period of time plants generating electricity from renewable resources the market price plus a premium. These feed-in-tariffs have normally only been awarded to electricity generated in-state. The preference given to in-state industry has been challenged in court as contradicting the principle non-discrimination on the European internal market. The decision by national legislatures to limit the availability of feed-in-tariffs to electricity generated in-state, however, has—to the surprise of many—been found justifiable by the European Court of Justice. This Article illustrates how the objective to ensure system stability has emerged as the strongest ground of justification in the context of cross-border electricity trade and how similar arguments have actually been used previously in the context of the health care service sector. While the reasoning of the court is defendable, the court could have developed an even more nuanced and informative position if it had taken notice of additional aspects that have popped up in the U.S. debate on similar questions.

The potential of electricity imports to meet future electricity requirements in India

As resources of electricity generation in India are not sufficient, this paper analyses the potential of electricity import from neighboring countries to meet the future electricity requirements of India. Based on the data of electricity generation, consumption, and future generation potential, we work out projected electricity generation/ demand of India and its neighboring countries by 2050 to identify the possibility of India’s cross-border electricity trading with its neighboring countries, more particularly the electricity import potential.

Modeling the value of integrated U.S. and Canadian power sector expansion

The U.S.-Canadian power system has evolved into a highly integrated grid. Cross-border transmission and coordination of system operations create an interconnected power system with combined imports and exports of electricity of greater than 77 TWh per year. Currently, more than 5 GW of new international transmission lines are in various stages of permitting and development. These transmission lines may enable even greater integration and coordination of the U.S. and Canadian systems, which can in turn increase the reliability and flexibility of North America’s electricity grid and help address challenges associated with integrating high levels of variable renewables. Using a version of the National Renewable Energy Laboratory’s Regional Energy Deployment System (ReEDS) model that incorporates Canada, this analysis quantifies the differences in the evolution of the power system under scenarios in which cross-border transmission capacity is restricted to today’s levels, and scenarios in which new transmission is less restricted. These impacts are analyzed under a “business-as-usual” reference scenario and a scenario in which deep cuts in power sector carbon dioxide emissions levels are achieved. A set of key impact metrics is analyzed, including 1) the composition of generating capacity by technology, 2) system costs, 3) wholesale electricity prices, 4) international electricity exports and imports, 5) transmission capacity, and 6) carbon dioxide emission levels. When new cross-border transmission is not allowed, the United States needs additional capacity (primarily natural gas and renewable energy) to meet domestic needs, while total Canadian capacity is lower because less capacity is needed to export to the United States. This effect is amplified under the carbon cap scenario. Impacts vary on a regional basis, largely due to the different relative sizes of the generation portfolio between countries and regions and the relative impact from cross-border electricity trade. The total impact from restricting cross-border trade on carbon emissions and average wholesale electricity prices is limited, due to the relative size of the domestic power systems and the cross-border trade volume. Cross-border transmission capacity is projected to more than double under the unrestricted transmission capacity scenarios, which exceeds the rate of projected domestic transmission capacity additions in each country.

An Empirical Analysis Of Multivariate Causality Between Electricity Consumption, Economic Growth And Foreign Aid: Evidence From Bangladesh

The indispensable role of electricity in expediting the process of industrialization leading to economic development, of developing nations in particular, cannot be questioned. Thus, researchers and policy makers all around the globe have endeavored themselves in identifying the contribution of electricity consumption in spawning economic growth of a nation. Furthermore, energy is also acknowledged as a key factor in attainment of the Social Development Goals (SDGs).Besides, it is globally acclaimed that foreign aid plays a direct role in attributing to economic growth of the recipient nation, while it also plays an indirect growth-role via enhancing electricity generations. The aim of this paper is to investigate the causal relationships between electricity consumption, economic growth and foreign aid inflow in Bangladesh incorporating relevant data from 1980 to 2013. Augmented Dickey Fuller (ADF) unit root test was used to test the stationarity of all the concerned variables. Johansen cointegration test is then employed to determine the long run relationships between the variables. Moreover, using Granger causality test, we observe various long run causal relationships between the variables while the Vector Error-Correction Model (VECM) approach provides the short run causalities. Results from the ADF test confirms that all our variables are stationary at their first differences, I (1) which eliminated the possibility of our regression being spurious. The Johansen cointegration test results provide evidence suggesting the existence of long run associations between the concerned variables. Moreover, results from the Granger causality test reveals a unidirectional causality running from electricity consumption to economic growth in Bangladesh in the long run. In addition, the VECM approach findings also confirm the unidirectional causality running from electricity consumption to economic growth in the short run as well. Thus, the 'growth hypothesis' is found to be valid in context of Bangladesh. As electricity consumption is found to be influencing the growth of the economy, it is recommended that Bangladesh ensures its energy security through effective energy diversification policies that are in line with the global trends in energy transition. Besides, the government can also consider its option to engage in Cross-Border Electricity Trade (CBET) with regional countries.

Development of renewable energy resources in Afghanistan for economically optimized cross-border electricity trading

Afghanistan is a key country between energy surplus areas (Central Asian Republics andIran) and energy deficit regions (Pakistan and India). It is in a position that can facilitate and launchregional electricity trade for the benefit of the region also derive significant gains for its own economyfrom energy imports and exports. On the other hand, Afghanistan is endowed with large renewableenergy resources (RERs), which it could exploit not only to satisfy its domestic power demand butalso to earn significant export revenue. This paper firstly explains the methodology and framework forthe power trade and then presents an optimization framework for profit maximization in the short-runtrading and cost minimization in the long-run trading. The proposed methodology is applied to a realcase between Afghanistan and Pakistan. The objective functions, parameters, variables and constraintsare described for both optimization models. System sizing, simulation and optimization are carriedout using genetic algorithm (GA) technique. The results in the short-run model represent optimalityof about 2654 MW electricity export from Afghanistan to Pakistan during summer. Moreover, resultsderived from running long-run model depict that by utilizing its RERs such as solar, wind and hydro,Afghanistan can not only meet its power demand but also can export to Pakistan during its deficitperiods and gain remarkable energy profits.

Potential gains from expanding regional electricity trade in South Asia

The South Asia region is lagging behind many regions in regional electricity trading despite the huge potential for trade. Using an electricity system optimization model, this study quantifies the benefits of unrestricted cross-border electricity trade in South Asia during the 2015–2040 period. The study finds that the unrestricted electricity trade provision would save US$226 billion (US$9 billion per year) of electricity supply costs over the period (~ $100 billion when discounted at 5% rate). The ratio of benefits, in the form of reduction of fuel and other operating costs, to increased costs of generation and interconnection investment would be more than 5:1. The provision would reduce regional power sector carbon dioxide emissions by 8%, mainly through substitution of coal-based generation with hydro-based generation, although regional emissions would be well above current levels absent other policy interventions because of rapidly growing demand. To achieve these benefits, the region would need to add 95 GW of new cross-border transmission interconnection capacity; but at the same time it would avoid 36 GW of additional interconnection capacity between the regional grids within India.

Cross-border trade in electricity

This paper develops a novel economic theory of two-way trade in a homogenous good, electricity. In this model of ‘reciprocal load smoothing,’ international trade provides insurance. As electricity demand is stochastic and correlated across jurisdictions, electric utilities can reduce their cost during peak periods by importing cheaper off-peak electricity from neighbouring jurisdictions. Two-way trade emerges in the presence of strongly convex marginal costs. Observed trade between Canadian provinces and US states strongly supports the theoretical model. Reciprocal load smoothing provides an economic rationale for integrating North America's fragmented interconnections into a continental ‘supergrid’ if technological progress in long-distance bulk transmission continues to reduce costs.

Improving Regulatory Environment for a Regional Power Market in South Asia

South Asian countries continue to face challenges such as poor access to energy, energy shortages, and concerns for energy security. The availability of primary sources for generating electricity vary across the region, and the potential for operational synergy provide room for cross-border electricity trade cooperation in the region. The economic and environmental benefits of such cooperation can be harnessed to its full potential if the existing barriers to enhance power marketing and barriers to cross- border trade of electricity can be reduced. For trade of electricity to be smooth across the region, policy and regulatory environments governing the power sector need to be harmonized. The adoption of the South Asian Association for Regional Cooperation (SAARC) Framework Agreement for Energy Cooperation (Electricity) during the 5th SAARC Energy Ministers’ Meeting and the 18th SAARC declaration in Kathmandu in November 2014 is a step toward achieving this harmonization. This paper examines the power sector regulatory and policy environment in the South Asian countries in the context of cross-border power trade. It identifies key issues influencing rapid development of cross-border power trade and provides specific recommendations to address these. Among others, some of the key areas that need attention are providing trading licenses, allowing open access transmission and distribution networks, coordinating transmission planning and power system operation, forming a nodal agency for cross-border power trading, and resolving disputes. The paper provides recommendations to improve policy and regulatory environment in the short, medium, and long term. These include, among others, identifying a nodal agency for cross-border trade until it is opened for wider participation; harmonizing key rules governing access to transmission, including cross-border interconnections and pricing; reducing commercial barriers for electricity trade; developing a framework to address system imbalances related to cross-border trade; establishing bilateral mechanisms and a regional framework to resolve disputes; allowing open access initially for transmission network and later for distribution network; and developing a regional transmission plan and a harmonized grid code in the medium to long term. The paper also suggests possible changes required to the existing electricity legislations in individual countries to accommodate and enhance regional electricity trade. The paper concludes that economic power exchange would not happen without the appropriate policies and without harmonizing legal and regulatory frameworks in all the necessary systems. If left to bilateral trading, the status quo of a limited trading regime will leave the vast economic, reliability, and environmental benefits unrealized. Experience across the world shows that such legal and regulatory changes can be accomplished successfully.

Regulatory Aspects and Public International Law Issues of the Construction of Cross-Border Electricity Networks

The role of government and regulation in the construction of regional interconnections and enabling cross-border trade in electricity over long distances is crucial. Only integrated electricity markets and well-designed regulatory frameworks can deliver and maintain cost-effective electricity systems. Interconnected electricity systems, in their turn, can contribute to the objectives of low carbon economy, as cross-border electricity networks can integrate large-scale renewable energy sources. This paper explores the challenges related to the regulatory environment for the construction of cross-border electricity transmission links. It looks at regulatory aspects and public international law issues of cross-border energy trade and investment and international and regional cooperation related to the construction of cross-border electricity networks. First, it examines the right to construct transmission under the law of the World Trade Organization (WTO), focusing on the transit provisions of Article V of the General Agreement on Tariffs and Trade (GATT) and related obligations under the Agreement on Subsidies and Countervailing Measures (ASCM). Second, it discusses rights and obligations arising from the participation at energy-specific international treaties, such as the non-impediment obligation under Article 7 of the Energy Charter Treaty. Third, it looks at the potential of creating legal guarantees for investors under regional trade and energy-specific agreements. The paper draws on existing case law and the experience with electricity market regulations and energy investment regimes in the European Union.

Embodied CO2 emissions and cross-border electricity trade in Europe: Rebalancing burden sharing with energy storage

Stricter emissions control and the increasing pressure for a common European energy market have stimulated new comprehensive methods for the estimation of national CO2 emissions that capture trade balances and introduce life-cycle implications for various sectors and products. In this study we adopt a new estimation framework for national electricity sector emissions which takes into account the cross-border electricity trade. Most importantly, we consider a novel aspect of how can utility-scale energy storage increase its value in its effort to serve the purpose of large-scale integration of renewables and system flexibility. For different levels of energy storage we assess the potential to prevent electricity trade flows from countries with higher CO2 emission factor to countries with lower CO2 emission factor. Optimum assessment of energy storage capacity in European countries is looked at from the viewpoint of maximum CO2 emission savings and the technically realizable pumped hydro storage at the national level. This is associated with the break-even CO2 price that can marginally support new investment in this domain. Our results show that the use of grid-scale energy storage could provide the framework for a fair burden sharing of emissions’ allocation in Europe and support a flexible and resilient energy supply system.

Privatisation and cross-border electricity trade: From internal market to European Supergrid?

The perspective European Supergrid would consist of an integrated power system network, where electricity demands from one country could be met by generation from another country. This paper makes use of a bi-linear fixed-effects model to analyse the determinants for trading electricity across borders among 34 countries connected by the European Supergrid. The key question that this paper aims to address is the extent to which the privatisation of European electricity markets has brought about higher cross-border trade of electricity. The analysis makes use of distance, price ratios, gate closure times, size of peaks and aggregate demand as standard determinants. Controlling for other standard determinants, it is concluded that privatisation in most cases led to higher power exchange and that the benefits are more significant where privatisation measures have been in place for a longer period.

Market Coupling in Electricity Markets: Status Quo and Future Challenges

In electricity markets globally, market participants and policymakers increasingly focus on integrating adjacent, yet separate market areas via cross-border trade in electricity. Based on a discussion of the institutional framework for organizing cross-border trade, this chapter analyzes how spot and futures prices for wholesale electricity are affected by different degrees of market integration. We first contrast the two main mechanisms to allocate transmission capacity between neighboring markets: explicit and implicit auctions. Subsequently, we study the impact of these allocation schemes on the empirical price dynamics of major electricity markets in Europe. Our empirical analysis thereby confirms that under market coupling, economically inefficient cross-border flows in the wrong direction can be avoided. From a policy point of view, however, we show that further market integration can be hindered by individual energy market regulation on a national level, which may be opposed to supra-national frameworks such as market coupling.

Impacts of unilateral capacity remunerative mechanisms on cross-border electricity trade

This paper focuses on the impacts of capacity remunerative mechanisms (CRMs) on electricity cross-border trade. As an example case, we focus on the cross-border electricity trade between the Nordic and Russian electricity markets. These two markets have distinctively different market designs. The Nordic market is an energy-only market that rewards the electricity generators for the output they produce. The Russian market rewards generators for the output and availability of electricity generation. We analyse the prospects for the cross-border electricity trade between the two markets. Our findings suggest that the different market designs notably reduce the cross-border electricity trade between the two markets and also have significant impacts on the distribution of welfare amongst the consumers and producers. These results have significant implications because many European countries are currently considering unilateral CRMs. An obvious threat is that the particularly uncoordinated CRMs cause impediments to the cross-border electricity trade, and result in inefficient use of the interconnectors. Such a development could severely hinder the achievement of the internal electricity market in Europe.