Renewable energy location and network congestion in a liberalised power market

The report is a partial study in the SNF projects No. 3080 and 3155, ''Environmental measures and efficiency'' and ''Robust energy markets''. The study presents a spatial equilibrium optimisation model of a power market. The reports concludes that the economic and environmental efficiency of the introduction of renewable energy generation in a congested network is crucially dependent on the location of these resources in relation to the capacity constraints in the network. Physical laws that govern flows in meshed electricity networks introduce important substitution and complementary impacts between generation assets at various locations. Neglect of substitution impacts in location decisions may result in crowding-out of existing generation capacity during times of congestion, while on the other hand complementary relationships between new and existing generation may reduce congestion. In the context of introduction of new renewable technologies, there is need for coordination between the development of renewable generation resources and network capacity to avoid that crowding-out of existing capacity, particularly if the existing capacity is primarily hydropower. This would result in production and environmental inefficiency in policy implementation. It may be emphasized that coordination does not necessarily imply centralization of renewable energy and network developments. The research and policy challenge is to devise grid-access regime and tariff mechanism that promote the necessary coordination. In the Norwegian policy context, it calls for a flexibility for Statnett to determine appropriate access regime for the renewable energy and a greater advisory role in the licensing process undertaken by the Norwegian Water Resources and Energy Directorate (NVE)