Impact of New Interconnection Lines on the EU Electricity Market

The stated aim of the EU Single Electricity Market (ESEM) is to link together EU electricity markets and get a unique electricity price across the EU. This target will be met by promoting efficient trading between price zones. Jointly with the ESEM, the EU has set separate ambitious targets for greenhouse gas emissions and renewable energy use: for emissions reduction these are stated as 20% lower than 1990 levels by 2020, rising to 40% lower by 2030 and 85% lower by 2050 that will directly and indirectly promote the investment in renewables. By 2030, massive changes in EU electricity markets will take place. High investments in renewables associated with the necessity of efficient trades may result in network congestion, which rises the costs of the EU electricity system. In this work we use a PLEXOS model to verify the level of network congestion in 2030 and assuming interconnection according to the 10 year network development plan (TYNDP). We determine where further investment in interconnection can contribute to decreasing system costs at the EU level. The choice of the optimal investment is endogenised in the model. First we verify how the wholesale electricity prices change in EU countries. Second we check how profits are affected by the new investments. Finally we perform a welfare analysis including the emission savings achieved with the new investments in transmission networks. Our results indicate that individual interconnection upgrades reduce total system costs and therefore increase net welfare at the EU level. In addition, a shift from producer surplus to consumer surplus can be observed as a result of a higher level of interconnection.