Can cross-border transmission expansion lead to fair and stable cooperation? Northeast Asia case analysis

Highlights: • Cross-border power interconnection cooperation in Northeast Asia leads to significant cost reductions • We develop a methodology for optimal sizing of cross-border lines and cost-benefit allocation between countries • A fair cost allocation implies that some countries should invest abroad • Bilateral contracts cannot assure a fair cost allocation – an international coordinator is needed • Information accuracy highly influences transmission expansion decisions -- Abstract: In this paper, we present a framework for analyzing cross-border power interconnection projects based on Cooperative Game Theory. Compared to existing studies, we not only quantify the benefits of interconnections and suggest cost-benefit allocation techniques, but also analyze the stability of the allocations, which is a crucial aspect in regions where coordination and mutual trust between countries have not been built yet. We apply our framework to the Northeast Asia where six countries (China, Russia, Mongolia, South Korea, North Korea, and Japan) are suggested for cross-border transmission expansion planning cooperation. Cost-benefits allocation of the interconnections is analyzed according to the marginal contribution of each country to the grand coalition and the minimal dissatisfaction of each coalition that ensures the stability of the solution. Accordingly, Game Theory concepts (the Shapley value and the Nucleolus) are used in our analysis. Moreover, we employ the Core concept to further analyze the stability of the allocation solution and present a visualization of the feasible space formed by all stable allocations. We found out that the grand coalition (i.e., the scenario where all countries agree on the cooperation) is the optimal and stable coalition, with $7.1 billion total savings per year. We also suggested a scheme of investment allocation and payments between the Northeast Asian countries in order to ensure that the proposed interconnections are plausible in practice.