FA C U LT Y O F S C I E N C EUNIVERSITY OF COPENHAGEN 

Master’s thesisDionysia Adamantidou

Cost efficient deployment of wind energy projects in Belgium and cross border cooperation

Msc programme in Environmental and Natural Resource EconomicsAcademic advisor: Peder AndersenSubmitted: 11/11/2014

How did I come to this specific idea?

Requires from Member States to submit to the

European Commission their NREAPs by 30th June

2010 [3]

Introduces 4 cooperation mechanisms aiming to help

them to reach their national target in a cost effective

way [1]

Directive 2009/28/EC

MS should implement cooperation mechanisms for the

achievement of their national target in a cost effective

way when “relative differences of technology costs

between Member States” have been identified [1]

Potential cross border cooperation on offshore wind:

Denmark (HS) – Belgium (User)

The RES4LESS project

What is the meaning of “Cost effective”

Looking at the economic theory….

A process can be efficiency if “the optimal relation

of inputs and outputs can be achieved” [8]

Cost efficiency can be achieved if producers manage

to reduce the costs of inputs without reducing their

production [8]

When an instrument is cost effective??

Cost-effective concept is related to efficiency - cost efficiency

According to Tietenberg (2003), assuming that there is a

number of available instruments for the achievement of a

target, “If one particular instrument can attain that target at

lower real cost than any other can then that instrument is

cost effective” [7]

But how will we identify the most

appropriate project for the achievement

of a result at a least cost ?

CEA is an economic tool suitable for program

evaluation, comparison and ranking

• For alternatives which are not mutually exclusive,

average CER= (total costs or PVC)/(Units of

Effectiveness)

• When out alternatives are mutually exclusive, we

use the ICER [4]

Cost-Effectiveness Analysis

CEA is a useful economic tool for project ranking but

not suitable for the achievement of the optimal

distribution of resources

How will we decide regarding the cost effective

allocation of wind energy between the two countries ?

CEA and cost effective allocation of resources

“The least-cost means of achieving an environmental

target will have been achieved when the marginal

costs of all possible means of achievement are equal”

(Cost-Effectiveness Equimarginal Principle) [7]

Cost-Effective Allocation

Results of CEA from the case study Denmark - Belgium

  Capacity

in MW

Capital Cost

in mil. €

CER in th. €(per

tonnes of CO2)

CER in th. €

(per MWh)

Project B 1000 3,600 2.7 1.1

Project D 1000 3,750 2.2 0.9

Even though the cost difference is small the wind farm

installation in Denmark seems to be the least cost

solution compared to Belgium

Deficient evaluation of the costs of the wind energy

conversion systems due to lack of :

“a) operation and maintenance costs

b) wind integradion costs

c) transmission line interconnection and

grid upgrade costs

d) value of available subsidies

e) any premium paid by customers

f) expected life”(Oliveira and Fermandes , 2012)

Shortcomings

CEA is a useful economic tool for project ranking but it

is not suitable for the achievement of the optimal

distribution of resources

We need to know and compare the marginal costs

functions

If the analysis is based on average abatement costs

the results from our calculations would be biased if the

marginal costs would be smaller than the average

abatement costs

The success of a cross border cooperation depends

on various factors related to the selected and

designed cooperation option.

Should be developed if the potential benefits

outbalance the potential costs for both countries and

the barriers could overcome

Cross border cooperation

Key drivers (Benefits): cost efficiency, effects on

employment and industry, technology development,

security of supply, building long term cooperation

Indirect benefits/costs: do not share equally

Barriers: institutional, difference in national support

scheme, difference in power market and power prices,

political

The cost difference which has been identified could

imply potential cost efficient deployment of wind

energy under the cooperation Denmark – Belgium

However, in order to decide if the cross border

cooperation should be developed further, we should

make a cost benefit analysis

Conclusion

[1] DTU, 2012b. D3.2 Assessment of Cooperation Mechanism options [pdf]. Available at:

http://www.res4less.eu/files/deliverables/ (Accessed on 20/07/2014)

[2] ECN, 2012a. D2.1 Preliminary Assessment of Renewable Energy Surplus in EU Member States based on Projections

in their National Renewable Energy Action Plans p.19 [pdf]. Available at: http://www.res4less.eu/files/deliverables/

(Accessed on 20/07/2014)

[3] EREC, 2012. Implementation of the RES Directive {Online} Available at:

http://www.erec.org/policy/eu-policies/implementation-of-the-res-directive.html (Accessed on 20/07/2014)

[4] Frick, 2006. Decision Rules [pdf] Available at:

http://ocw.jhsph.edu/courses/understandingcosteffectiveness/PDFs/Lecture3.pdf (Accessed on 11/09/2014)

[5] Oliveira and Fermandes , 2012. Cost effectiveness analysis of wind energy projects [pdf] Available at:

http://journaldatabase.info/articles/cost-effectiveness_analysis_for_wind.html (Accessed on 15/11/2014)

[6] Roger et al, 2003. Natural Resource and Environmental Economics 3rd edition p.204 [pdf]. Available at:

http://dutraeconomicus.files.wordpress.com/2014/01/roger-perman-yue-ma-michael-common-david-maddison-james-

mcgilvray-natural-resource-and-environmental-economics-3rd-edition-2003.pdf (Accessed on 20/07/2014)

[7] Tietenberg, 2003. Environmental and Natural Resource Economics 6th edition p.55

[8] University of Oldenburg, n.d. Efficiency and effectiveness: the concepts [Online] Available at: http://www.c3l.uni-

oldenburg.de/cde/COLproject/web-col/concept.htm (Accessed on 20/07/2014)

References

THANK YOU FOR YOUR ATTENTIONYour questions are welcome