Factors that Influence the Targets and Criteria for Electricity Interconnector Investments

This paper analysis various factors that influence electricity interconnector investments. It shows that several features linked to zonal market design, in particular the possibility to favour market participants in the own country compared to those in the neighbouring countries, distort the investment signals for interconnectors. Uncertainties on investments in both transmission and generation have a big influence in interconnector investment decisions. The paper proposes that flaws in market design, capacity calculation and capacity allocation need to be addressed to provide efficient signals for interconnector investments. It proposes to reduce price zone flaws by forming more natural price zones for Europe. Regarding asymmetry in cost and benefits of interconnector investments this paper proposes a two tier mechanism to rebalance the costs and benefits for the involved parties.