Energy | Other
Cost benefit analysis in the context of the energy infrastructure package
28 February 2013
BY: Leonardo Meeus, VON DER FEHR Nils-Henrik, AZEVEDO Isabel, HE Xian, Luis Olmos, Jean-Michel Glachant
- Cost Benefit Analysis (CBA) has proven to be a useful tool to support the economic appraisal of important projects in many sectors. In the energy domain, a single CBA method has been proposed at EU level to evaluate and compare electricity transmission and storage projects from different countries, which is unprecedented anywhere in the world. - The objective of the 10th report of THINK has been to advise the European Commission (DG Energy) on the development of this method in the context of the Energy Infrastructure Package. This brief is derived from that report. We provide recommendations for the scope of the analysis as well as the calculation of the net benefit. We also discuss how the method can be used to rank projects. - Regarding the scope of the analysis, our recommendations are: (1) interaction between projects must be taken into account in the project and baseline definition; (2) data consistency and quality should be ensured; (3) the conventional time horizon is 20-25 years; (4) CBA should concentrate on a reduced list of effects and those should be monetized; and (5) distributional concerns should not be addressed in the calculation of net benefits. - Regarding the calculation of the net benefit, our recommendations are: (6) infrastructure costs need to be disaggregated; (7) the model used to monetize the production cost savings and gross consumer surplus needs to be explicitly stated; (8) a common discount factor should be used for all projects; and (9) a stochastic approach that is consistent with the Energy Roadmap 2050 should be used to address uncertainty. - Regarding the ranking of projects, our recommendation is: (10) the ranking should be primarily based on the monetized net benefit. - ENTSO-E has already proposed a draft method for electricity projects. We will analyse to what extent this method is in line with our recommendations and will conclude that it is an important step in the right direction. However, improvements could still be made, as proposed in this brief.
logo cadmus Read it on Cadmus Download in open access

LATEST FSR PUBLICATIONS

Working Paper
In this paper, we discuss the implementation of Capacity Remuneration Mechanisms (CRM) in the European Union (EU). We first illustrate that the costs of CRMs in the EU are significantly [...]
Other
Additionality is a key requirement for the renewables based electricity to be used by electrolysers to produce renewable hydrogen. Additionality could be defined as the requirement that renewables-based electricity used [...]
Working Paper
China has always upheld multilateralism and has advocated the use of multilateral mechanisms to jointly address global climate change issues. This paper discusses what China does and why, and how [...]
Working Paper
Interoperability in the context of smart electricity metering is high on the European policy agenda but its essence has been challenging to capture. In this paper, we look at experiences [...]
Other
Around 75% of European cargo transport operations in terms of ton-kilometers are performed by trucks, which, in turn, entail massive environmental and societal impacts. Prior to the COVID-19 pandemic, road [...]
Other
Green LNG is a newly emerging trend in the natural gas industry which has been incentivised by the decarbonisation process. This new line of thinking encourages LNG suppliers to offset [...]

Join our community

To meet, discuss and learn in the channel that suits you best.

scroll

top