Transmission pricing in interconnected systems - A case study of the Nordic countries

Abstract

With renewable energy production increasing around the world, there is a growing need for interconnection to balance intermittent supply. This cross-border trade of electricity requires navigating in multiple regulatory regimes and market designs, not least when it comes to transmission pricing. By considering the Nordic countries as a case study, this paper investigates the impact of different transmission pricing regimes on investment decisions for renewable energy production. A generation expansion problem for wind power is simulated with the current transmission prices in Sweden, Finland, Norway, and Denmark applied, along with a baseline case with no transmission pricing differences, to achieve a quantitative comparison. The importance of coherent transmission pricing is demonstrated through the large discrepancy in wind power investments resulting from the two cases studied.