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FA C U LT Y O F S C I E N C EUNIVERSITY OF COPENHAGEN
Master’s thesisDionysia Adamantidou
Cost efficient deployment of wind energy projects in Belgium and cross border cooperation
Msc programme in Environmental and Natural Resource EconomicsAcademic advisor: Peder AndersenSubmitted: 11/11/2014
How did I come to this specific idea?
Requires from Member States to submit to the
European Commission their NREAPs by 30th June
2010 [3]
Introduces 4 cooperation mechanisms aiming to help
them to reach their national target in a cost effective
way [1]
Directive 2009/28/EC
MS should implement cooperation mechanisms for the
achievement of their national target in a cost effective
way when “relative differences of technology costs
between Member States” have been identified [1]
Potential cross border cooperation on offshore wind:
Denmark (HS) – Belgium (User)
The RES4LESS project
What is the meaning of “Cost effective”
Looking at the economic theory….
A process can be efficiency if “the optimal relation
of inputs and outputs can be achieved” [8]
Cost efficiency can be achieved if producers manage
to reduce the costs of inputs without reducing their
production [8]
When an instrument is cost effective??
Cost-effective concept is related to efficiency - cost efficiency
According to Tietenberg (2003), assuming that there is a
number of available instruments for the achievement of a
target, “If one particular instrument can attain that target at
lower real cost than any other can then that instrument is
cost effective” [7]
But how will we identify the most
appropriate project for the achievement
of a result at a least cost ?
CEA is an economic tool suitable for program
evaluation, comparison and ranking
• For alternatives which are not mutually exclusive,
average CER= (total costs or PVC)/(Units of
Effectiveness)
• When out alternatives are mutually exclusive, we
use the ICER [4]
Cost-Effectiveness Analysis
CEA is a useful economic tool for project ranking but
not suitable for the achievement of the optimal
distribution of resources
How will we decide regarding the cost effective
allocation of wind energy between the two countries ?
CEA and cost effective allocation of resources
“The least-cost means of achieving an environmental
target will have been achieved when the marginal
costs of all possible means of achievement are equal”
(Cost-Effectiveness Equimarginal Principle) [7]
Cost-Effective Allocation
Results of CEA from the case study Denmark - Belgium
Capacity
in MW
Capital Cost
in mil. €
CER in th. €(per
tonnes of CO2)
CER in th. €
(per MWh)
Project B 1000 3,600 2.7 1.1
Project D 1000 3,750 2.2 0.9
Even though the cost difference is small the wind farm
installation in Denmark seems to be the least cost
solution compared to Belgium
Deficient evaluation of the costs of the wind energy
conversion systems due to lack of :
“a) operation and maintenance costs
b) wind integradion costs
c) transmission line interconnection and
grid upgrade costs
d) value of available subsidies
e) any premium paid by customers
f) expected life”(Oliveira and Fermandes , 2012)
Shortcomings
CEA is a useful economic tool for project ranking but it
is not suitable for the achievement of the optimal
distribution of resources
We need to know and compare the marginal costs
functions
If the analysis is based on average abatement costs
the results from our calculations would be biased if the
marginal costs would be smaller than the average
abatement costs
The success of a cross border cooperation depends
on various factors related to the selected and
designed cooperation option.
Should be developed if the potential benefits
outbalance the potential costs for both countries and
the barriers could overcome
Cross border cooperation
Key drivers (Benefits): cost efficiency, effects on
employment and industry, technology development,
security of supply, building long term cooperation
Indirect benefits/costs: do not share equally
Barriers: institutional, difference in national support
scheme, difference in power market and power prices,
political
The cost difference which has been identified could
imply potential cost efficient deployment of wind
energy under the cooperation Denmark – Belgium
However, in order to decide if the cross border
cooperation should be developed further, we should
make a cost benefit analysis
Conclusion
[1] DTU, 2012b. D3.2 Assessment of Cooperation Mechanism options [pdf]. Available at:
http://www.res4less.eu/files/deliverables/ (Accessed on 20/07/2014)
[2] ECN, 2012a. D2.1 Preliminary Assessment of Renewable Energy Surplus in EU Member States based on Projections
in their National Renewable Energy Action Plans p.19 [pdf]. Available at: http://www.res4less.eu/files/deliverables/
(Accessed on 20/07/2014)
[3] EREC, 2012. Implementation of the RES Directive {Online} Available at:
http://www.erec.org/policy/eu-policies/implementation-of-the-res-directive.html (Accessed on 20/07/2014)
[4] Frick, 2006. Decision Rules [pdf] Available at:
http://ocw.jhsph.edu/courses/understandingcosteffectiveness/PDFs/Lecture3.pdf (Accessed on 11/09/2014)
[5] Oliveira and Fermandes , 2012. Cost effectiveness analysis of wind energy projects [pdf] Available at:
http://journaldatabase.info/articles/cost-effectiveness_analysis_for_wind.html (Accessed on 15/11/2014)
[6] Roger et al, 2003. Natural Resource and Environmental Economics 3rd edition p.204 [pdf]. Available at:
http://dutraeconomicus.files.wordpress.com/2014/01/roger-perman-yue-ma-michael-common-david-maddison-james-
mcgilvray-natural-resource-and-environmental-economics-3rd-edition-2003.pdf (Accessed on 20/07/2014)
[7] Tietenberg, 2003. Environmental and Natural Resource Economics 6th edition p.55
[8] University of Oldenburg, n.d. Efficiency and effectiveness: the concepts [Online] Available at: http://www.c3l.uni-
oldenburg.de/cde/COLproject/web-col/concept.htm (Accessed on 20/07/2014)
References
THANK YOU FOR YOUR ATTENTIONYour questions are welcome