Scandinavian Working Papers in Economics

Working Papers,
Copenhagen Business School, Department of Economics

No 10-2024: Cross-border Allocation of Costs and Benefits of Shared Energy Infrastructure in the EU: An Organisational Perspective

Anupama Sen, Tooraj Jamasb () and Christine Brandstätt ()
Additional contact information
Anupama Sen: Smith School of Enterprise and the Environment, University of Oxford
Tooraj Jamasb: Department of Economics, Copenhagen Business School, Postal: Copenhagen Business School, Department of Economics, Porcelaenshaven 16 A. 1. floor, DK-2000 Frederiksberg, Denmark
Christine Brandstätt: Department of Economics, Copenhagen Business School, Postal: Copenhagen Business School, Department of Economics, Porcelaenshaven 16 A. 1. floor, DK-2000 Frederiksberg, Denmark

Abstract: EU electricity infrastructure will need to undergo significant expansion to meet future demand for green energy, as member countries seek to meet their 2050 net zero targets. Meeting these targets requires the development of cross-border transmission networks, as high shares of offshore renewables need to be integrated in energy “hubs” and into mainland markets. However, the current liberalised national, but integrated, energy markets present challenges to the efficient development of the hubs. In the emerging offshore multi-vector renewable system, a simple allocation of the investment costs of a “hub” among its beneficiaries is not necessarily proportionately aligned with the benefits drawn from it. This challenge is exacerbated by the allocation of property rights to operate regulated natural monopolies of national Transmissions System Operators (TSOs), creating a fragmented ownership structure. We propose a solution based on the logic of collective action – namely, that a subset of EU member states have the shared incentive to cooperate on the joint development of assets. We then outline a Joint Venture framework that decouples the decision to invest from the decision on the allocation of costs and benefits across beneficiaries, enabling essential investments to proceed. This model also exhibits favourable dynamic properties for gradual development of hubs.

Keywords: Cost allocation; decarbonisation; electricity; networks; climate; energy; security

JEL-codes: L50; L51; L94; Q40; Q48

Language: English

17 pages, June 2024

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