The project strategic scenario analysis (START) is a joint research project with a project grant of 2.1 million euros between 2017 and 2019. It is part of the Energy Transition Hub, a German-Australian research initiative. The aim of the project is to analyse the transformation towards carbon neutral energy systems in Australia and Germany.
The Hertie School and START
In the context of the START project, the Hertie School analysed locational investment signals in the power sector. Wholesale electricity markets in Europe and Australia are geographically organised in so-called “bidding zones”. Within each zone, a uniform electricity price exists; consequently, no sub-zonal incentive arises from this market design. Additional locational instruments can serve for that purpose. We employed an empirical and theoretical approach to evaluate which instruments are currently used, how they can be quantified, and which their specific characteristics are.
The identified locational investment instruments can be grouped into five classes: locational electricity markets, deep grid connection charges, grid usage charges, capacity mechanisms, and renewable energy support schemes. The analysis shows that all countries use at least one of these instruments. Surprisingly, most systems, including jurisdictions that apply nodal pricing, use multiple locational instruments in parallel. Yet, there does not exist a single instrument, which is used in a majority of countries – indicating that no single best solution exists. The quantification of instrument reveals a wide variation of resulting locational price and revenue differences. Overall, locational signals are often stronger for renewable energy sources than for conventional generation. We identified as major challenges for most instruments a lack of credibility, missing transparency and insufficient spatial accuracy. Moreover, we found that some of the instruments distort an efficient dispatch of power generation through undesired short-term signals.
The research results were compiled in a scientific article, which was published in The Energy Journal under the title Locational Investment Signals: how to steer the siting of new generation capacity in power systems?
Potsdam Institut für Klimafolgenforschung (Lead)
Mercator Research Institute on Global Commons and Climate Change
Westfälische Wilhelms-Universität Münster, German Aerospace Center
German Institute for Economic Research
University of Melbourne
Australian National University
Royal Melbourne Institute of Technology
Federal Ministry of Education and Research (Germany)
01.10.2017 – 30.09.2019