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Regional grid cooperation

5.2 Results

5.2.5 Regional grid cooperation

The grid cooperation (GC) and grid and policy cooperation (GPC) scenarios assume the development of four offshore hubs. These hubs are connected to predefined wind farms and to onshore connection points in at least two different countries. The hubs thereby provide additional transmission capacity between countries in the region, which affects the rest of the power system and should ease the integration of variable renewable energy generation in general.

By 2030, the improved interconnectivity entailed in these scenarios leads to an increase in onshore wind power and biomass generation that mainly displaces coal and gas generation (Figure 5-18). This result applies to the comparison of the GP scenarios to the NP scenario, with Low (Figure 5-18, top) as well as Ambitious (Figure 5-18, bottom) offshore wind power deployment. The main reason is that the increased interconnectivity related to the hubs improves options to transport onshore wind power generation across bidding zones and thereby improves market value for onshore wind power.

In 2050, the higher level of interconnector capacity between countries in the Baltic Sea region results in higher wind power generation both onshore and offshore. The increase in offshore wind power deployment mainly takes place in the North Sea, since offshore wind power capacity in the Baltic Sea Region is fixed by design in the scenarios. At the same time, generation from natural gas, biomass and solar power is decreased. In 2030, these effects apply when comparing the Low GC scenario to the Low NP scenario (Figure 5-18, top), as well as when comparing the Ambitious GC to the Ambitious NP scenario (Figure 5-18, bottom), but are larger in magnitude in the latter case.

-60 -50 -40 -30 -20 -10 0 10 20 30 40 50

2030 2050

€/MWh

CAPEX CAPEX (Baltic offshore) OPEX Fuel CO2 Total

Figure 5-18 Changes in power generation in the modelled area for the Low GC scenario compared to the Low NP scenario (top) and for the Ambitious GC scenario compared to the Ambitious NP scenario (bottom)

-15 -10 -5 0 5 10 15

2020 2030 2050

TWh

Generation changes in Low GC scenario

compared to Low NP scenario Solar

Offshore wind - Baltic Offshore wind - Other Onshore wind Hydro Other RE Biomass Waste Other fossil Natural gas Coal Nuclear Sum

-30 -20 -10 0 10 20 30

2020 2030 2050

TWh

Generation changes in Ambitious GC scenario compared to Ambitious NP scenario

Solar

Offshore wind - Baltic Offshore wind - Other Onshore wind Hydro Other RE Biomass Waste Other fossil Natural gas Coal Nuclear Sum

Figure 5-19 shows the differences in average generation cost per MWh between the Low GC and the Low NP scenarios (top panel), and between the Ambitious GC and Ambitious NP scenarios (bottom panel). For the Low GC scenario, aggregated generation costs increase by around 7 €/MWh of Baltic offshore wind power in 2030, while aggregated generation costs decrease by around 3 €/MWh of Baltic offshore wind power by 2050. In the case of ambitious deployment of Baltic offshore wind power, the importance of offshore grid cooperation increases and in 2030, aggregated generation costs are almost the same as in the case without offshore grid cooperation. In 2050, aggregated generation costs decrease by around 5 €/MWh of Baltic offshore wind generation.

The results thus indicate that with the chosen hub configuration, the GC scenario is not cost efficient towards 2030. The cost efficiency of cooperation on the hubs increases however beyond 2030, especially if the ambitious deployment targets for Baltic offshore wind are pursued. However, as we explain in the next section, Individual hub economy on page 46, the results vary between the hubs and some of the individual hubs are cost efficient in 2030 in the ambitious scenarios.

Figure 5-19 Changes in generation costs* for the Low GC scenario compared to the Low NP scenario (top) and the Ambitious GC scenario compared to the Ambitious NP scenario (bottom). Shown as

€/MWh of Baltic offshore wind power.

* Including connection costs for offshore wind power -8

-6 -4 -2 0 2 4 6 8 10 12

2030 2050

€/MWh

Changes in generation cost in Low GC scenario compared to Low NP scenario

CAPEX CAPEX (Baltic offshore) OPEX Fuel CO2 Hub Total

-10 -8 -6 -4 -2 0 2 4 6 8

2030 2050

€/MWh

Changes in generation cost in Ambitious GC scenario compared to Ambitious NP scenario

CAPEX CAPEX (Baltic offshore) OPEX Fuel CO2 Hub Total

Individual hub economy

Figure 5-19 reports the results of the grid cooperation scenario, assuming all four hubs are developed before 2030. In this section, we disaggregate the results and examine each of the hubs individually.

The marginal market value provided by each of the hubs is a combination of the value of the wind power generated at the hub and the value of the additional interconnector capacity provided. This marginal value can be shown by evaluating the market value of the power generated at the hub and the congestion rent obtained on the transmission line. The congestion rent is in this case shown per MWh of offshore wind power generation at the hub.

Looking at the economic figures for each of the four hubs, as shown in Table 6-4, we observe significant differences both with respect to the cost of generation (LCOE) and the market value of the hubs. Note that the market value reported here includes both the value of generation and the congestion rent.

I should also be noted that the offshore wind power sites included within each of the hubs are not equal in the low and ambitious scenarios. This is the case since a) the total capacity – and therefore number of sites needed to deploy this capacity – varies according to the ambition level, and b) the targeted total deployment of offshore wind capacity in the countries in the different scenarios restrict the options for using specific sites at the hubs. As an example, the LCOE for Hub 1 is lower in both 2030 and 2050 in the ambitious scenario because the more ambitious deployment target for Denmark allows for inclusion of a low LCOE site at Hub 1 in the ambitious scenario which could not be deployed in the low scenario. For other hubs, such as Hub 4, the increased offshore wind power capacity in the ambitious scenario requires the utilization of more expensive sites and therefore the LCOE increases.

The market value of the wind power generation at the hubs is affected by the total amount of offshore wind power generation in the Baltic Sea region, the interconnection of the region, the specific wind power generation profile at the site, and the general power price development over time. Therefore, no general conclusion applicable to all hubs can be drawn on how the market value on the hubs is affected in different years and scenarios. As a tendency, more wind power deployment in itself causes market values to decrease, while higher transmission capacity leads to higher market values in low price areas and lower market values in high price areas.

Hub 1, located in the southeast of the region between Sweden, Germany and Denmark, appears to be the most attractive under the Low deployment scenario – at least in the short term. By 2030 and in the Low Grid Cooperation scenario, Hub 1 demonstrates a relatively low LCOE of approximately 55 €/MWh and a market value of almost the same size. In 2050, the LCOE is reduced to approximately 49 €/MWh, almost 4 €/MWh lower than its market value. In the ambitious scenario, the LCOE is further reduced, since a portion of the wind power capacity is placed at better sites within the same hub, resulting in the LCOE being lower than the market value in both 2030 and 2050, by 0.5 and 3 €/MWh respectively.

Hub 2, located between Sweden, Poland and Lithuania, shows a significantly higher LCOE relative to Hub 1. As a result, Hub 2 ends up adding to net costs in 2030 under the Low deployment scenario. However, under the Ambitious deployment scenario it reduces overall costs. In 2050, the LCOE for Hub 2 is significantly below its market value in both the Low and

Ambitious GC scenarios due to high electricity prices in Poland. The high power prices in Poland are the result of high CO2 prices combined with a limited access to cheap renewable energy resources, such as onshore wind power in Poland, and should be interpreted with some caution.

Hubs 3 and 4, located further north in the Baltic Sea, suffer from comparatively low market values and do not generate net cost savings under either the Low or Ambitious scenarios by 2050. Therefore, a sensitivity analyses has been carried out, to assess the overall scenario economy without those two hubs. See section 5.2.7.

More information on the cost and market value of the individual hubs is available from Appendix D.

Table 5-4 LCOE* and MV per hub in the Low GC and the Ambitious GC scenarios

LCOE* MV LCOE minus

MV Low Grid Cooperation scenario

2030 Hub 1 55.2 53.8 1.5

Hub 2 69.5 55.4 14.1

Hub 3 - - -

Hub 4 60.5 38.4 22.1

2050 Hub 1 48.8 52.6 -3.7

Hub 2 58.1 82.6 -24.5

Hub 3 52.7 37.3 15.4

Hub 4 51.1 39.9 11.2

Ambitious Grid Cooperation scenario

2030 Hub 1 51.9 52.5 -0.5

Hub 2 54.8 62.7 -7.9

Hub 3 58.4 39.9 18.4

Hub 4 56.1 38.6 17.5

2050 Hub 1 46.7 49.9 -3.2

Hub 2 52.0 89.5 -36.5

Hub 3 51.8 33.5 18.3

Hub 4 54.5 39.5 14.9

Note: * Including costs for both offshore wind power and the hub connections. LCOEs incl. hub costs, MV incl. congestion rent. There is no capacity at Hub 3 in Low GC scenario in 2030 and therefore no cost and value calculations.