|dc.description.abstract||The transition to a low-carbon energy economy will remain a cornerstone of national energy policies of countries committed to the climate change accord for decades to come. We highlight the need for transmission investment as one key policy instrument among others to achieve an energy economy with lower dependence on fossil fuels. We propose an enhanced role for investing in transmission capacity in support of large-scale inter-regional electricity trade to allow effective fuel switching among countries through a physically connected transmission system and functioning markets. A conceptual framework of Regional Energy Hubs REH is proposed. The cost minimization model for the transmission investment strategy integrates the:
1. key geopolitical parameter for countries that are geographically close in a region but under different political jurisdictions, judged as stable and receptive to firm trading arrangements,
2. economic parameter related to the fuel mix where the differences in a country's supply and demand characteristics are significant enough to allow mutual benefits to be realized through cost reduction,
3. environmental parameter linked to a country's carbon intensity that could benefit from the resources of a neighboring jurisdiction with lower intensities, and
4. financial parameter for each country within a region capable of attracting investment capital for a common interest project.
The proposed REH is an innovative framework that is the basis for a cost-effective but environmentally beneficial strategy for integrating the energy supply mix of several countries. The countries are geographically contiguous but operate as different jurisdictions with diverse geopolitical, economic, environmental, and financial constraints. For a regional energy hub, the transmission capacity investments act as one of the key policy instruments allowing recognition of the REH interconnectors as the links. We have applied the REH Framework for two case studies: one in developing markets in South-Eastern Europe and a developed market in the North American context.
In the first case study, we have utilized the REH Framework's geopolitical parameter to select a set of countries with developing markets to form a regional electricity hub and applied an economic dispatch model to minimize generation costs and reduce GHG emissions simultaneously in the newly formed REH's total energy fuel mix. The preliminary results for this case study indicated that the total cost minimization approach for the region results in a net benefit in favor of the transmission investment. The REH enables transmission capacity to achieve reduced cost generation and emissions by physically interconnecting markets in a predefined region, essentially enabling fuel switching of carbon-based power generation.
In the second case study, we have utilized the REH Framework's financial parameter for a developed market, e.g., the PJM's capacity market, to identify the potential value of interconnectors by employing a financial option theory to value capacity options between a generation and an interconnector. Results of our analysis for the existing and planned projects provide strong evidence of the value of transmission capacity as an option within the REH Framework and points to a pathway to achieve decarbonization at lower costs across a region instead of focusing only on investments in generation capacity.
Following ratification of the Paris 2015 Climate Change Accord, all national governments are committed to a reduction of GHG within their jurisdictions. This puts a premium on the identification of practical and cost-effective pathways for achieving the national targets for reducing GHG within a regional context. The case studies demonstrate the critical role of a REH in delivering tangible benefits through interconnectors that would otherwise not be achievable if each country’s energy system was isolated from its contiguous neighbors.
The REH allows integration of a diverse mix of generation supply of different countries to yield maximum financial value and GHG reduction potential through transmission interconnectors. To enable the transition to a low carbon energy system of the future, REH's offer an expedient pathway through the development of transmission interconnection capacity consistent with geopolitical, environmental and financial criteria developed here.||en