Modeling the Cost of Achieving a Renewable Energy Target: Does it Pay to Cooperate Across Borders?

Electricity markets are increasingly integrated across borders, but transmission and renewable energy
policies often remain local and uncoordinated. In this paper, we analyze how cooperative behavior in
developing renewable energy technologies across borders and/or cross-border transmission capacity
investment can reduce the cost of achieving a renewable energy target. We use a three step
equilibrium model with: i) transmission investment, ii) generation investment and iii) electricity
market that we apply to an interconnected two zone system. We find that it pays to cooperate if the
zones have different renewable energy sources, but the success of a renewable energy cooperation also
depends on cooperation in transmission development, which is therefore an important interaction to
take into account in renewable energy policy discussions.