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To trade or not to trade

May 2014

Vlerick Business School


What is the impact of the regulatory framework for transmission investments on the cost of renewable energy in the EU?

Under the current regulatory framework transmission investment planning is mainly done at a national level. This may result in suboptimal transmission investments, i.e. maximising national rather than European welfare, as cross-border projects initiated by one member can be vetoed or delayed by the other member states involved. However, investments in transmission infrastructure are important to enable cross-border renewable energy trade. Why? Because such trade would help reduce the costs of achieving the national targets for renewable energy. So, the question is whether the current imperfect regulatory framework is actually a problem?

To answer that question, Marcelo Saguan, senior energy economist at Microeconomix, and Leonardo Meeus, Vlerick professor, developed a novel competitive equilibrium model that determined the ‘optimum’ transmission capacity for different scenarios, calculating the impact of the imperfect regulatory framework on the cost of renewable energy in each of the scenarios.



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