Transmission Expansion Planning of Transnational Offshore Grids: A Techno-Economic and Legal Approach Case Study of the North Sea Offshore Grid

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Transmission Expansion Planning of

Transnational Offshore Grids

A Techno-Economic and Legal Approach

Case Study of the North Sea Offshore Grid

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Transmission Expansion Planning of

Transnational Offshore Grids

A Techno-Economic and Legal Approach

Case Study of the North Sea Offshore Grid

Dissertation

for the purpose of obtaining the degree of doctor at Delft University of Technology by the authority of the Rector Magnificus Professor K.C.A.M. Luyben;

Chair of the Board for Doctorates to be defended publicly on Friday 05, February 2016 at 10:00 ´oclock

Proefschrift

ter verkrijging van de graad van doctor aan de Technische Universiteit Delft,

op gezag van de Rector Magnificus prof. ir. K.C.A.M Luyben, voorzitter van het College voor Promoties,

in het openbaar te verdedigen op vrijdag 05 februari 2016 om 10:00 uur door Shahab Shariat Torbaghan,

Electric Power Engineering, M. Sc., Chalmers University of Technology, Gothenburg, Sweden

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Prof. Mart van der Meijden Dr. Madeleine Gibescu

Composition of the doctoral committee:

Rector Magnificus voorzitter

Prof. ir. Mart van der Meijden Delft University of Technology, promotor

Dr. Madeleine Gibescu Eindhoven University of Technology, co-promotor Prof. dr. Paulien M. Herder Delft University of Technology

Prof. dr. Benjamin F. Hobbs Johns Hopkins University

Prof. dr. Magnus Korp˚as Norwegian University of Science and Technology Prof. dr. Keith Bell University of Strathclyde

Prof. dr.ir. J.G. (Han) Slootweg Eindhoven University of Technology Prof. dr. Peter Palensky Delft University of Technology (reservelid)

The research described in this thesis was supported by the Nederlandse Organisatie voorWetenschappelijk Onderzoek (NWO) under the energy transition programme.

Published and distributed by: Shahab Shariat Torbaghan E-mail: shahob.sh.t@gmail.com

WWW: https://nl.linkedin.com/pub/shahab-shariat-torbaghan/3b/3a1/0/ ISBN 978-94-6233-220-1

Keywords: Long term planning, Optimization, Wind energy, HVDC transmission, Electric-ity markets, Support schemes, Policy recommendation.

Copyright c 2016 by Shahab Shariat Torbaghan

All rights reserved. No part of the material protected by this copyright notice may be re-produced or utilized in any form or by any means, electronic or mechanical, including pho-tocopying, recording or by any information storage and retrieval system, without written permission of the author.

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Summary

The new energy policy of the European Union (EU) with the core objectives of competitive-ness, reliability and sustainability, has driven Europe into a transition towards a low carbon & sustainable electricity supply systems. Under the new policy, the European energy sys-tems are pursing two major objectives. First is to shift the focus from national to regional or (perhaps) a European level with the ultimate goal of introducing regional markets that facil-itates cross-border power trades. Second, is to incorporate large renewable energy sources into the power systems to best exploit the energy resources. In this regards, special atten-tion is oriented towards the development of the offshore gird in the North Sea region where offshore wind is abundant and has potential to become major energy source in the area.

This thesis looks into transmission expansion planing in the North Sea region. It presents a market based approach to solve a long-term transmission expansion planning for a meshed VSC-HVDC offshore grid that connect regional markets. The main goal here is to determine the grid design that enables harnessing the offshore wind energy most efficiently, at the same time, creating capacity for conducting cross-border power exchange. Development of an offshore grid in the North Sea can encounter various technical, legal and economic barriers. Consequently advanced planning frameworks are required that enables accounting for these issues. The methodology proposed here provides a framework to investigate the impact of each of these factors on the development of offshore infrastructures.

More precisely, the contributions of this thesis can be summarized as follows:

• Static Transmission Expansion Planning framework (STEP)

In Chapter 5, I have proposed a multiple time-period static transmission expansion planning framework that is applicable to VSC-HVDC meshed grids. I have shown that the analytical solution to the problem gives the pricing mechanism that expresses the relationship between the electricity price of different zones and the congestion charges associated with the interconnectors between them. It is an extension of the work of Schweppe et al. that has been proven for and applied to VSC-HVDC grids. The proposed formulation includes investment recovery through congestion revenues as an implicit strict equality constraint. It, therefore, computes the expansion plan, such that the investment capital will be fully paid off through congestion revenues by the end of the chosen lifetime of the infrastructure. The framework determines the topology, transmission capacities and the power flows through the offshore grid, and the resulting distribution of social welfare among the price zones. By combining both flow-constraints and investment recovery-constraints and working with historical market data, the framework can deliver useful results that demonstrate how onshore price zones could benefit from an optimal grid design.

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• Iterative clustering methods for computation feasibility

The optimization framework proposed in Chapter 5 was intended to be driven by his-torical market-data in the form of hourly regional cost curves. The dimensionality of the search space and the computational intensity of the proposed optimization algo-rithm make the problem intractable. It was desirable to identify and work with only a subset from the total set of operating states. I developed an iterative algorithm that combines an unsupervised clustering technique with the proposed optimization tool to cope with the computational burden of the large-scale optimization problem. Au-tomatic space transformation and clustering were performed to select a subset of rep-resentative hourly operating states. The number of samples in the subset was adjusted in order to match the congestion-induced revenues to that of the full data set. This en-sured that essential information was not lost. The framework, thus, balances the need for reasonable computation times against the benefits of a model that allows multiple time-periods (as defined by zonal prices and wind power production combinations) and obtains realistic results. Several clustering algorithms (including K-means) and feature reduction techniques (such as Principal Component Analysis (PCA)) have been used in investment planning analysis. Their combination has also been explored in literature. However, this is the first time that an unsupervised PCA/clustering tech-nique has been combined with an optimization tool to refine the clustering results.

• Static Wind and Transmission Expansion Planning framework (SWTEP)

Chapter 6 describes a novel co-optimization wind and transmission expansion frame-work applicable to VSC-HVDC meshed grids. This is an extension of the static framework presented in Chapter 5 that adds wind to the TEP formulation, while implementing support schemes, which inherently induce a deviation from perfect competition. This results in a fundamental contradiction between the structure of the competitive market and the nature of support policies. The novelty of the work presented in Chapter 6 is that it has limited the market distortion by excluding the support payments from the market clearing process. To do so, I have proposed a for-mulation that divides the initial investment of the offshore wind infrastructure into subsidized and unsubsidized parts. Thus, the objective of the optimization problem was to maximize sum of incremental social welfare of all regions at all times, minus the aggregated investment cost of offshore transmission infrastructure and the invest-ment cost of building the offshore wind farms that has not been covered through the support payments. The proposed framework enables the impact of implementing two types of feed-in premium support schemes (i.e., generation-based and capacity-based) to be accounted for in the final development of the grid. The goal of this chapter was to investigate the performance of the two feed-in support policies to verify if invest-ment recovery would be fulfilled under a certain support scheme design. In addition, an ‘optimal’ support level and offshore wind support tariff rate were determined. The analytical solution to the optimization problems confirms the complete recovery of the investment cost of transmission infrastructure. In addition, under the assump-tion that no offshore wind was curtailed, the revenues collected from market sales of offshore wind farms can pay off the unsubsidized part of the wind farm investment, regardless of the payment basis (generation-based or capacity-based).

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Summary 3

• Dynamic Transmission Expansion Planning framework (DTEP)

In Chapter 7, I have proposed a market-based, multiple stage, multi-time period dy-namic transmission expansion planning framework for a meshed offshore grid to con-nect upcoming offshore wind farms to multiple onshore markets. The main contribu-tion of this framework is that it enables accounting for delays in the construccontribu-tion and implementation of offshore infrastructures, including wind farms and transmission systems. Delays can occur mainly due to legal barriers associated with differing per-mitting criteria in an international context, but also due to market maturity and supply chain issues. The timing of delays in grid, market and wind farm developments are set exogenously in the model. This is an extension of the work presented in Chap-ter 5 in which the whole offshore grid was assumed to be built in one instant. The final results include the optimal grid topology, transmission capacities, construction timing and the resulting remuneration and distribution of the social welfare increase and financial benefit among the various onshore price zones. The analytical solu-tion to the optimizasolu-tion problem gives the pricing mechanism that is consistent with the AC onshore counterpart. The proposed market mechanism facilitates the inte-gration of a multi-terminal VSC-HVDC offshore grid into the existing AC grid. In addition, the analytical solution confirms the investment recovery through conges-tion revenues, regardless of the number of investors that are involved. In the case of multiple investors, an independent financial entity is required that collects the trans-mission revenues from the grid operators and distributes them appropriately amongst the investors. Under this regulatory assumption, the investment recovery of every ca-ble of every interconnector will be completely fulfilled within the desired economic-lifetime.

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Samenvatting

Het nieuwe energiebeleid van de Europese Unie (EU) met als belangrijkste doelen: con-currentie, betrouwbaarheid en duurzaamheid, heeft Europa gedreven in een transitie naar een kooldioxide-arme (CO2-arme), duurzame elektriciteitsvoorziening. In het nieuwe be-leid worden wat betreft de Europese energiesystemen twee belangrijke doelstellingen nage-streefd. De eerste is om de focus van nationaal naar regionaal of (misschien zelfs) Euro-pees niveau te verschuiven met als uiteindelijk doel de invoering van regionale markten die grensoverschrijdende elektriciteitsuitwisseling vergemakkelijken. De tweede doelstelling is het grootschalig inpassen van hernieuwbare energiebronnen in de energiesystemen en deze energiebronnen optimaal te benutten. Wat dit laatste betreft, is er bijzondere aandacht gericht op de ontwikkeling van een offshore elektriciteitsnet (net-op-zee) in de Noordzee-regio, waar wind overvloedig aanwezig is en de potentie heeft de belangrijkste energiebron van de regio geworden. Dit proefschrift onderzoekt de uitbreiding van het net-op-zee in de Noordzeeregio. Een marktgebaseerde benadering wordt gepresenteerd voor de lange-termijnplanning van uitbreidingen van vermaasde VSC-HVDC offshore netwerken die re-gionale markten verbinden. Het belangrijkste doel is hier om het netontwerp te bepalen waarmee de offshore windenergie het meest efficiënt verzameld wordt, terwijl er tegelijker-tijd capaciteit voor grensoverschrijdende energie-uitwisseling gecreëerd wordt. In de ont-wikkeling van het offshore netwerk in de Noordzee kunnen diverse technische, juridische en economische barriéres ontstaan. Daarom zijn geavanceerde planningsmethoden nodig die deze barrires in beschouwing nemen. De hier voorgestelde methode biedt een mogelijkheid om de impact van elk van deze factoren op de ontwikkeling van offshore-infrastructuur te onderzoeken. De bijdragen van dit proefschrift kunnen als volgt worden samengevat:

• Static Transmission Expansion Planning framework (STEP)

In hoofdstuk 5 wordt een meervoudige-tijdperiode, statische planningsmethode voor-gesteld die van toepassing is op vermaasde VSC-HVDC netten. Er wordt aangetoond dat de analytische oplossing voor het probleem het prijsmechanisme beschrijft dat de relatie vormt tussen de elektriciteitsprijs in verschillende zones en de congestiehef-fingen geassocieerd met de verbindingen tussen de zones. Het is een uitbreiding van het werk van Schweppe et al. dat is bewezen voor en toegepast op VSC HVDC-netten. De voorgestelde formulering omvat het terugverdienen van investeringen door middel van congestie-inkomsten als een impliciete strikte beperking gelijkheid. Het berekent het netuitbreidingsplan, zodanig dat de investeringen volledig door de congestie-inkomsten zullen worden terugverdiend aan het einde van de gekozen le-vensduur van de infrastructuur. De methode bepaalt de topologie, transportcapaciteit en de vermogensstromen in het offshore netwerk, en de daaruit voortvloeiende

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ling van sociale welvaart in de verschillende prijszones. Door vermogensbeperkingen met investering-terugverdienbeperkingen te combineren en te werken met historische marktgegevens, kan de methode bruikbare resultaten leveren die aantonen hoe prijs-zones op land zouden kunnen profiteren van een optimaal ontworpen netwerk op zee.

• Iterative clustering methods for computation feasibility

De in hoofdstuk 5 voorgestelde optimalisatiemethode is bedoeld om te worden ge-bruikt met historische marktgegevens in de vorm van regionale, (per-uur) kostencur-ves. De grootte van de zoekruimte en de rekenlast van het voorgestelde optimalisa-tiealgoritme maken het probleem lastig. Het is wenselijk om slechts een deel van de totale set van operationele toestanden te bepalen en hiermee verder te werken. Er is daarom een iteratief algoritme ontwikkeld dat een clusteringtechniek met de voorge-stelde optimalisatiemethode combineert om met de rekenlast van het grootschalige optimalisatieprobleem om te gaan. Automatische ruimtetransformatie en clustering werden uitgevoerd om een subset van representatieve operationele (per-uur) toestan-den te selecteren. Het aantal toestantoestan-den in de subset werd aangepast om overeen te komen met de congestie-opbrengsten van de volledige dataset. Dit zorgt ervoor dat de essenti¨ele informatie niet verloren raakt. Deze methode weegt dus de noodzaak voor redelijke berekeningstijden tegen de voordelen van een model dat meerdere termijnen toestaat (zoals gedefinieerd door zone-prijzen en windenergie-productiecombinaties) om realistische resultaten te verkrijgen. Diverse clustering algoritmes (waaronder ‘K-means’) en ‘feature reduction techniques’ (zoals ‘Principal Component Analysis (PCA)’) zijn gebruikt voor de analyse van de investeringsplanning. Deze combinatie is ook onderzocht in andere literatuur. Echter, dit is de eerste keer dat een ongecontro-leerde PCA / clusteringtechniek is gecombineerd met een optimalisatiemethode om de clusteringresultaten verfijnen.

• Static Wind and Transmission Expansion Planning framework (SWTEP)

Hoofdstuk 6 beschrijft een nieuwe co-optimalisatie windenergienetuitbreiding voor vermaasde VSC-HVDC netten. Dit is een uitbreiding van het statische raamwerk ge-presenteerd in hoofdstuk 5, waarin de wind toegevoegd is aan de TEP-formulering, terwijl subsidieregelingen, die inherent een afwijking van perfecte concurrentie ver-oorzaken, worden ge¨ımplementeerd. Dit resulteert in een fundamentele tegenstelling tussen de structuur van de concurrerende markt en de aard van het subsidiebeleid. Het nieuwe aan het werk zoals gepresenteerd in hoofdstuk 6 is dat de marktversto-ring beperkt wordt door het uitsluiten van betalingen uit het markt-cleamarktversto-ring proces. Om dit te doen, wordt een formulering voorgesteld die de initi¨ele investering van de offshore windenergie-infrastructuur in gesubsidieerde en ongesubsidieerde delen verdeelt. Dus het doel van het optimalisatieprobleem is om een incrementele hoe-veelheid welvaart van alle regio’s te allen tijde te maximaliseren, met aftrek van de geaggregeerde investeringskosten van offshore transport-infrastructuur en de investe-ringskosten van de bouw van windmolenparken op zee die niet worden gedekt door subsidies. De voorgestelde methode maakt het mogelijk de gevolgen van de imple-mentatie van twee types van feed-in-premie-subsidieregelingen (i.e. productiegeba-seerde en capaciteitgebaproductiegeba-seerde) worden meegenomen bij de definitieve ontwikkeling van het net. Het doel van dit hoofdstuk was om de prestaties van de twee feed-in-subsidies van het beleid te onderzoeken om na te gaan of de investeringen onder een

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Samenvatting 7 bepaalde subsidieontwerp zou worden terugverdiend. Daarnaast is een ‘optimaal’ on-dersteuningsniveau en offshore windsubsidietarief bepaald. De analytische oplossing voor het optimaliseringsprobleem bevestigt het volledige terugverdienen van de in-vesteringskosten van de transportinfrastructuur. Daarnaast, in de veronderstelling dat er geen overproductie van windenergie op zee is, kunnen de opbrengsten van offshore windenergie op de markt de ongesubsidieerde investeringskosten van de windparken dekken, ongeacht de tariefbasis (productiegebaseerd of capaciteitgebaseerd).

• Dynamic Transmission Expansion Planning framework (DTEP)

In hoofdstuk 7 wordt een marktconforme, meerfasige, multi-periode dynamische ex-pansie transmissie planningsmethode voorgesteld voor een vermaasd net-op-zee om toekomstige offshore windparken aan te sluiten op meerdere onshore markten. De belangrijkste bijdrage van deze methode is dat het mogelijk is de vertragingen in de bouw en implementatie van offshore-infrastructuur, met inbegrip van windmolenpar-ken en transportsystemen te beschouwen. Vertragingen kunnen met name ontstaan als gevolg van wettelijke belemmeringen in verband met verschillende criteria in een internationale context, maar ook als gevolg van de volwassenheid van de markt en bevoorradingsvraagstukken. De timing van de vertragingen, de markt en de windpar-kontwikkelingen worden exogeen in het model gemodelleerd. Dit is een uitbreiding van het werk in hoofdstuk 5, waarin het verondersteld werd dat het gehele net-op-zee gelijktijdig gebouwd wordt. De definitieve resultaten zijn onder andere de optimale netwerktopologie, de transportcapaciteit, de timing van de bouw en de daaruit voort-vloeiende beloning en verdeling van de welvaartstoename en het financi¨ele voordeel tussen de verschillende onshore prijszones. De analytische oplossing van het opti-malisatieprobleem leidt tot een prijsmechanisme die consistent is met die van AC onshore netten. Het voorgestelde marktmechanisme vergemakkelijkt de integratie van een multi-terminal VSC HVDC net-op-zee in het bestaande elektriciteitsnet. Bo-vendien bevestigt de analytische oplossing het terugverdienen van de investering door middel van congestie-inkomsten, ongeacht het aantal investeerders die betrokken zijn. In het geval van meerdere investeerders, is een onafhankelijke financi¨ele entiteit ver-eist die de overdrachtsinkomsten vanuit de netbeheerders verzamelt en op de juiste wijze onder de investeerders verdeelt. Onder deze veronderstelde regelgeving zal de investering van elke verbindingskabel volledig worden terugverdiend binnen de ge-wenste economische levensduur.

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Acknowledgements

This dissertation would not have been possible without the help of so many special people. First and foremost, I would like to thank my co- promotor, Dr. Madeleine Gibescu for being an extremely supportive and inspiring supervisor. You achieved the difficult balancing act of shaping my research while giving me the freedom to develop my own ideas. Thank you for the invaluable scientific guidance and the contribution to many of the ideas in this thesis. Your work ethic, scientific vision, your positivity encouraged me and helped me in playing down my worries and insecurities. In addition to what I have learned from you scientifically, it was your role in my personal growth that I treasure the most. You are a compassionate person with high standards, a person who cares for others and a leader who outwardly commands respect. The experience I have had working with you will undoubt-edly be invaluable in my future personal and professional life. It has been a privilege to have you as a mentor and for that, I am forever thankful.

Secondly, I express my gratitude to my promotor Professor Mart van der Meijden for his sharp and precise comments and kind support. Mart, I learned the importance of “con-sistency in patterns” from you. During our meetings you have not only been my academic discourse partner for my research, but also an extremely interesting conversationalist for a broad range of topics.

I would also like to acknowledge the role Dr. Barry Rawn of Brunel University London for his expert guidance, encouragement and enthusiasm for my research. I learned how to be critical and to not fear voicing my thoughts from you Barry, and I am thankful for that.

The guidance, patience and hard work of the project partners, Professor Martha Roggenkamp and Dr. Hannah M¨uller, have been crucial to the success of my research.

Early in my PhD, I have been fortunate to receive generous advice from Professor Marija Ilic of Carnegie Mellon University. She discussed with me a multitude of issues helping me understand the context of my research.

I would like to acknowledge the perserverance and critical eye of Haleh Torbaghan, the precision and comprehensive clarity of Bart Tuinema, and the patience, art and talent of Hoda Pejhan.

I am thankful to my committee members for reading through my thesis and for their comments, which I greatly appreciate.

Maman va Baba, if it wasn’t for you and your encouragements, I would not be where I am now. Maman in you, you have all the love one person can have. You nurtured me, protected me, encouraged me, and accompanied me with your unconditional and endless love. You taught me to be happy which, is the most fundamental lesson in life. Your favorite quote: “Don’t worry, everything will be just fine,” is what I try to recall every time I endure any adversity. Baba, you, your character, principles, ethics and mannerisms are

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truly unique and are lifetime lessons for me. You were my first mentor in life. You taught me how to take life seriously and how not to give up when things get tough. You had, and continue to have, a profound impact on me and who I am today. My love and respect for you two is beyond words.

Solmaz, you are my sister, my companion and my best friend. You are the breeze that carries me on, when I set adrift. Thank youDADA for countless occasions you stood by me, supported me and above all, understood me before I did. I am gifted to have you next to me, though a continent away. Nima, dadash, you are a great person, a good singer and truly a great writer. I have enjoyed reading your stories a lot along the way.

Delaram, you are the rock I leaned on whenever life drained the energy out of me. Your calmness, happiness and eagerness for living is boundless. Having you next to me is indeed what drives me to move forward. Your presence during these past years, have made me a happier person.

Shahrzad and Ali, you are like older siblings to me who I can always open up to and count on. Your presence gave me warmth and energy. I will always be grateful to you.

Khale Fariba, Amo Houman, and Mantre, you are like a second family to me. Your hospitality and support have been a constant source of strength.

Pejman and Pantea, Farshad, Ario, Armin Parnia, Ali and Soudi, you guys are true friends. This experience would have been much less interesting without you. You helped me re-define the meaning of life when I was lost and made the journey more beautiful, by your passion, support and friendship. Your presence warmed my heart on some cold, dark nights.

Our interesting and sometimes difficult conversations have a huge role in my personal development. Hamed, your professionalism and wisdom helped me better know and un-derstand the seriousness of life and the working environment. Sepideh, your integrity and empathy has been ever apparent and your presence has helped me better know and under-stand myself. I am truly grateful to both of you for your friendship.

Afshin, Ebrahim and Jens, your wisdom and intellectual clarity have been of the greatest sources of inspiration. I learned a lot from our discussions. You helped me set my mission in my career and develop it in my personal and professional life.

Zong, your support from the first day, helped me stabilize my position and make firm decisions throughout the way. Your tricks, jokes and sense of humor made the office a friendly and enjoyable environment. Romain, Your presence, personality, and cakes let the office remain just as fun. You both made it possible for my PhD to be an exceptional experience.

Elham, Farnaz, Maryam, Shaghayegh, Saeed (Khan), Kaveh, Shaghayegh, Maryam, Ana, Sheida va Navid, Parham, Reza and Farnoush, you are precious to me. I am thankful for your support, when I needed the most. It reminded me once again how fortunate I am to have you guys in my life. I appreciate your friendship. Navid Vakili, your short residence in the Netherlands was a pleasant experience. It brought me tons of good memories from the past. I miss you buddy.

Ali Babaie, you play an indispensable role in my life. Our infrequent but intimate meet-ups shed light to the darkest sides of my personality and helped me grow to a stronger and (perhaps) a better person.

Haleh, Maryam and Mojgan (Karimi and Karimi), Elham and Ali, Nima, Yashar, Sasha, Shams, Mani and Parsa, you are treasures from my childhood. Thanks for making my trips

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Acknowledgements 11 back to Iran fun and memorable. Sam, you are quite an inspiration to me, although you are too young to understand it now.

Throughout my time in Delft, I have been blessed with forming lasting friendships with incredible people who have made the challenges easier and the joys more joyous. I would like to thank them for that: Nadjla and Bernat, Siamak, Nami and Saba, Dena, Samaneh and Anton, Ghazaleh, Siavash and Nina, Armin and Faryaneh, Kianosh, Behzad, Babak Loni, Hooman and Ava, Ammar and Sepideh, Saleh and Samira, Paradeep, Ann-Sophie and Rad. It has been a privilege to have you as friends and for that, I am forever thankful.

I would also like to thank all the members of the IEPG group, particularly Professor Peter Palensky, Dr. Marjan Popov, Dr. Jose Rueda Torres and PhD candidates Hossein, Mario, Swasti, Arjen, Bart, Claudio, Arcadio, Arun, Lian, Kaikai, Matija and Ilya. Working with you was a rewarding experience I will carry with me for the rest of my life.

Last but not least, I would like to thank the secretaries of IEPG group, Mrs. Sharmila Rattansingh, Mrs. Ellen Schwencke-Karlas and Mrs. Ilona van der Wenden, for their valu-able administrative support as well as their kindness during this period.

If I’ve never got to thank you, I would like to take this chance to thank you all for all you’ve done for me.

Shahab Shariat Torbaghan, Delft, January 2016.

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Chapter 1

Introduction

1.1 Societal Context

Global warming is renowned as one of the gravest environmental issues that is changing the face of the Earth [1]. There is an incontrovertible consensus that global warming is a clear result of the anthropogenic emission of greenhouse gases (GHGs) [2, 3]. GHGs remain in the atmosphere and trap the energy received from the Sun, which inevitably re-sults in diminutive rise of temperature. The rising temperaturem in-turn, has resulted in climate change that has caused catastrophic changes in many ecosystems and devastating phenomena that are affecting sustainable social and economic development of all societies. Therefore, one of the most vital steps in addressing the global warming is to abate GHG emissions. As abundant amounts of GHG emissions result from burning coal and other pol-luting fuels for the production of electricity, it is undoubtedly the right time to shift from traditional fossil fuels and consider other alternatives, such as renewable resources [4].

Decisions regarding the choice of electrical energy sources are determined by consid-ering various factors, such as the supply, stability and price of resources, including exter-nalities. These externalities refer to “the social effects and economic cost arising from the process of producing the energy, but that are not reflected in the market price of the energy” [5]. Estimations of external costs are often based on diverse assumptions and, therefore, they are difficult to compare. Yet several studies attempt to quantify the externalities of different energy production alternatives. By internalizing the external costs of various tech-nologies into the price of the electric energy produced, it can be seen that, firstly, fossil fuels are the greatest source of externalities. Secondly, amongst conventional energy resources, nuclear technology has the lowest externalities, due to fewer greenhouse gases emissions. And thirdly, renewable technologies (wind, solar, tidal, etc.) are absolutely competitive with nuclear power plants, and depending on the assumption, may even have lower external costs [6–9]. Catastrophic incidents, such as the nuclear disasters at Fukushima in Japan, and Chernobyl in Ukraine are two important examples that have significantly affected the natural environment, the health and life of local residents and the private property of third parties, who are not directly related with the energy production activities. Such phenomena should be taken into account to estimate the cost of different technologies for producing energy. In this regard, the externalities of traditional sources of energy (such as fossil fuel

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and nuclear) and their hidden impact have become increasingly important as one of the key driving factors for the development of renewable resources.

Large-scale integration of Renewable Energy Resources (RES) into power systems in-troduces new challenges to system planning and operation. Firstly, renewable energy sources are often located remotely from load centers. Hence, new robust transmission infrastruc-ture is a prerequisite for transferring power from the generation location to the load centers. Secondly, the power output of renewable resources is highly dependent on meteorological conditions. Thus, variable renewable generation, such as that from wind, wave and solar sources, may consequently be difficult to predict over some time scales. Therefore, large penetrations of such units into the power system can lead to increase in the variability and uncertainties in the system’s generation output, and drive a need for greater flexibility. Ref-erences [10–12] proposed several solutions to reduce the impact of wind variability and the associated risks. One possible solution at the transmission level is to extend the geographi-cal distribution of the power system by building new transmission interconnectors1_between

neighboring control areas.

Amongst the various renewable energy sources, special attention is focused on offshore wind energy, because of rich wind resources and minor environmental constraints [14]. Off-shore wind projects are progressively built at remote sites that, have higher wind potential, but are further away from the load centers. Due to this increasing distance from shore, there is an increasing need for additional transmission capacity to deliver the generated electric-ity to the consumers. This can be done through radial connections (meaning that individual wind farms are connected with a single cable to the closest onshore connection point) or through clustered radial connections (that connects several offshore wind farms to each other and to an onshore connection point). An efficient alternative to the radial connections would be to develop a meshed offshore grid. Such a design could bring significant eco-nomic benefits in terms of reduced investment and operational costs of power generation by sharing assets between different wind farms and facilitating cross-border power exchange between the neighboring countries. In this regard, new transmission networks are needed to be developed, both on- and offshore [15, 16]. Such developments can improve the capability of the system to accommodate the variability and uncertainty in the power balance (i.e., due to the fluctuating and uncontrollable nature of wind power), while maintaining satisfactory levels of performance. This possible future development is explored in this thesis.

1.2 Chapter Organization

The rest of this chapter provides an introduction to this thesis and is organized as follows: 1. Section 1.3 presents the motivation for the subject covered by this dissertation. 2. Section 1.4 briefly reviews relevant academic literature on the topic.

3. Section 1.5 describes the key research questions discussed in this thesis in two do-mains: techno-economic and institution domains.

1_{European Union electricity legislation defines an interconnector as: “a transmission line which crosses or}

spans a border between Member States and which connects the national transmission systems of the Member States” [13].

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1.3 Research Motivation 15 4. Section 1.6 describes the research objectives analogous to the research questions

dis-cussed.

5. Section 1.7 reviews the modeling assumptions considered throughout this thesis. 6. Section 1.8 introduces the research project under which this work has been carried

out and highlights the complementarity of the two sub-projects. 7. Section 1.9 summarizes the main contribution of thesis. 8. Section 1.10 sketches the outline of the rest of the thesis.

1.3 Research Motivation

The construction of new infrastructures in Europe was initially driven by the need for in-creased cross-border power exchanges and the integration of the wholesale electricity mar-kets. The liberalization of the power industry and emergence of electricity markets has changed the way of thinking about the operation of the system from a national to a regional or even European level. In the new environment, planners pursue solutions that facilitate cross-border power trades and encourage more efficient use of energy resources over all power systems. The European Union (EU’s) third internal energy market package is a good example. It was one of the major policy initiatives that aimed at “accelerating infrastructure investments, with the goal of ensuring the proper functioning of the EU electricity market” [17].

Today, the demand for integrating sustainable and renewable low-carbon energy re-sources has become an important supporting factor [17]. With the ambitious ‘20/20/20’ targets, Europe aims at reducing CO2emissions by 20% compared with 1990 levels,

in-creasing the share of renewable sources in European energy systems to 20%, and inin-creasing energy efficiency by 20%. It was the starting point for Europe’s transition to low carbon and sustainable energy supply. The 20/20/20 target is guided by the EU’s energy and climate change policies core objectives which are:

1. Security of energy supply (by ensuring a reliable and uninterrupted supply of energy and electricity),

2. Competitiveness as electricity markets are restructured (by reducing the energy prices and increasing market efficiency), and

3. Sustainability (by limiting the footprint of energy production, transmission, and use on the environment).

Amongst the various renewable energy sources, the contribution of wind energy is in-creasing rapidly due to greater technical maturity and dein-creasing cost. Special attention is focused on the North Sea region, where there is great potential for offshore wind energy generation. Offshore wind energy is viewed as a substantial potential contributor towards reaching the national renewable energy targets. The total installed capacity of offshore wind (OW) installations in Europe is expected to amount to 40 GW by 2020 and might go as high as 150 GW by 2030, with even more ambitious targets being established for 2050 [18]. In

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order to harness offshore wind energy most efficiently, both follow-up and regional studies indicate the need for reinforcements and new connections [19, 20]. Such developments re-quire huge investment and coordination between the various stakeholders that are involved. These projects are considered as the key priority in the national development plans of several North Sea coastal EU Member States [21]. However, significant expansion of transmission capacities in reality can encounter various technical, regulatory, social and/or legal chal-lenges at different stages of the development. As a result, large-scale integration of offshore wind energy requires a sound transmission planning practice.

So far, several projects have been launched in the EU2to align pan-European power grid development with the EU’s policy targets and move towards a pan-European Supergrid (see Chapter 4). Building an offshore grid and reinforcing existing onshore transmission systems may encounter either barriers or incentives in technical-, economic-, political- and regulatory domains. The technical issues have been well defined and addressed in literature [22–24]. From an economic viewpoint, developing a transnational transmission infrastruc-ture requires a massive investment. They will have significant impact on the market oper-ation of different countries. From a legal view-point, differences amongst heterogeneous national regulatory regimes, lack of legal certainty and international cooperation, reduced social acceptance of projects and lack of a long-term vision are factors that can hamper the development of cross-border offshore transmission and offshore wind projects. They should be addressed adequately, otherwise, the development of a European offshore grid may be suboptimal, not cost-efficient or might even be prevented from coming into existence [25].

1.4 State-of-Art in Transmission Expansion Planning

Transmission Expansion Planning (TEP) is a multi-disciplinary challenge with the scope of several decades (e.g., 25-50 years). It encompasses financial objectives with regulatory constraints and technical realism. When formulated, TEP can be a multi-stage, mixed-integer, nonlinear, non-convex, optimization problem. The main objective of TEP is to expand existing power systems to enable them to create sufficient capacity for cross-border power exchange, to accommodate new types of renewable sources of energy and to serve growing demand in the future.

Transmission expansion planning for AC networks has been investigated thoroughly in literature [26–29]. Early models were based on linear programming [30]. Proper accounting of physical flows using linearized dc approximation [31], allows Kirchhoff’s Voltage Laws (KVL) to be enforced with disjunctive constraints instead of nonlinear ones and, therefore, provided a key to understanding the connections between actual lines, their cost, and bene-fits to different regions [32, 33].

In [34, 35], the authors propose multi-stage transmission expansion planning, but ignore the interactions of transmission- and generation investments. Sauma et al. [36] propose a multistage game–theoric–based transmission and generation expansion planning framework

2_{Several point-to-point HVDC projects have already been established (e.g., between The Netherlands and}

Norway (NorNed 1), The Netherlands and the United Kingdom (BritNed)) and many more are planned (e.g., between Germany and Norway (NorGer and NorD.Link), The Netherlands and Norway (NorNed 2), Denmark and The Netherlands (Cobra)). There are also several projects for offshore wind connection to the shore that have recently been commissioned or construction started (mostly in Germany) such as BorWin 1, BorWin 2, SylWin 1, HelWin 1, and DolWin 1 projects.

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1.5 Problem Definition and Research Questions 17 that incorporates the effects of strategic interaction between generation and transmission, but such models are computationally-burdensome, especially when applied to real-world problems.

A number of studies [37, 38] propose co-optimization of generation and transmission expansion based on mixed-integer formulation of flexible topology controls discussed in [39, 40]. Using a large-scale wind generation and transmission expansion planning model, the authors in [41] show that ignoring the interdependency between transmission and wind expansions can lead to a sub-optimal solution.

Physical limitations of the AC technology, especially for offshore application (i.e., ex-cessive reactive current drawn by the cable capacitances that induces exex-cessive cable losses and demands reactive shunt compensation to control voltages and avoid over-voltages [42]), in addition to recent advances in the High Voltage Direct Current (HVDC) technology, have triggered interest in exploration of the application of HVDC technology for large-scale, long-distance transmission applications. There are two types of HVDC transmission sys-tems: Current Source Converter (CSC) HVDC (or classical HVDC) and, Voltage Source Converter (VSC) HVDC. VSC has significant advantages over CSC, which make this tech-nology favorable for long offshore interconnections specifically. VSC HVDC techtech-nology utilizes better control of the electricity flow and direction. VSC is more compact compared with CSC and is easier to design. It enables ‘black start’ capability and connection to weak power systems. Last but not least, it enables multi-terminal configurations. Therefore, it is preferred technology for the development of a meshed grid design [43].

Previous studies [44, 45] show that the DC transmission system can be considered as an alternative to AC technology in competitive electricity markets. More research is required to assess the economic impact of the integration of HVDC transmission systems into AC power systems. And this leads to the three main research questions, as presented in Section 1.5.

1.5 Problem Definition and Research Questions

As mentioned above, there is significant interest in building an offshore grid to carry out transnational power exchange and deliver cheaper electricity from renewable energy sources, located far from the load centers. The development of offshore infrastructures inevitably in-volves overcoming with various legal and economic barriers. The economic fundamentals of consumption and generation constrain realistic development. Appropriate choices re-garding technology and line routing are necessary for proper cost optimization in actual implementation [19, 46]. Proper accounting of physical flows using impedances, rather than transport models, is key to understanding the connections between actual lines, their cost, and benefits to different regions. Inclusion of the correlation and location of actual injections can be obtained by using several periods, or even all hours of the year, in order to achieve a grid design that is adequate yet not overbuilt [47]. The quest to realize new transmission grids demands an adequate framework that considers such challenges and ad-dresses them properly. Consequently, expanding offshore wind- and transmission capacities demands a rigorous planning methodology that can be applied to HVDC systems and re-quires further research. The objective of this thesis is to investigate the development of an offshore grid using the North Sea as a case study. It proposes a market-based approach to solve a long-term TEP for meshed grids that connect large amount of offshore wind farms to

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regional markets using VSC-HVDC technology. The proposed framework enables account-ing for different legal and economic conditions. Consequently, this approach is utilized to investigate the following topics and to answer three research questions described below.

1.5.1 Topic 1: Techno-Economic Domain - Determining the Optimal

Design of the Grid Offshore

The pace of required development brings challenges of finance; the magnitude of capital expenditures associated with anticipated grid development have been evaluated as a strain on financial viability of the usual financiers of transmission projects, the transmission system operators [48]. Several national regulators are seeking possibilities to encourage private investment in grid projects. The issue of investment is a crucial factor that could slow or threaten the feasibility of transmission developments and yet it is not extensively studied. Thus, more research needs to be done to assess the ‘pros and cons’ of different possible grid designs and their economic impacts on the stakeholders.

Grid expansions and reinforcements should be justified by looking at a sufficiently large number of operating states that includes various combinations of wind and price conditions. Analyzing such a robust input set enables the model to provide a realistic evaluation of the required reinforcements and financial turnovers (i.e., money flows). Here, the focus is on capacity planning to account for short-run variability in wind and price. However, the dimensionality of the search space and the computational intensity of the problem can make it intractable. Instead, it is desirable to identify and work with only a subset from the input set that contains adequate information. The challenge here is that it is very difficult to determine an adequately informative input set that is feasible to solve.

Finally, as no proper HVDC meshed grid has ever existed, it is extremely important to develop a market mechanism that is consistent with the existing established AC counterpart. Otherwise, it would be excessively difficult to operate the interconnected AC/DC systems. Therefore, it is important to develop an economic mechanism that is applicable to both AC and DC systems. Note that the main focus of this thesis is on transmission expansion planning for a transnational offshore HVDC grid as applied to the North Sea region.

In this regard, the first research question this thesis attempts to answer is:

Research Question 1: “What would be an economically optimal grid and associated pricing mechanism for a transnational offshore HVDC grid considering short-run variability in wind power and market prices?”

1.5.2 Topic 2: Institutional Domain - Investigating the Impacts of

Im-plementing Heterogeneous Legal Regimes

From a legal standpoint, lack of legal certainty and a long-term vision, the lack of interna-tional cooperation in addition to nainterna-tional orientation of laws in the most EU countries are recognized as limiting factors in developing cross-border offshore transmission and offshore wind projects.

For cross-border projects, the main issues are the difference between the environmental legislation and different requirements for the grid connection. In addition, the social ac-ceptance of grid connections and new transmission lines is important. These issues have

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1.6 Research Objectives 19 been addressed in [49–51] and are beyond the scope of this thesis work. Yet there are other crucial factors that demands further research and will be the focus of this thesis. First is the structure of the offshore wind support. At present, offshore wind projects require govern-mental support to become competitive and economically attractive for investors. However, the national support schemes currently in force have not been designed to support cross-border projects. Existing support schemes in most EU countries are limited to projects within the national territory, and are thus, not applicable to projects that are located partly or wholly within the territory of another EU Member State. However, as the discussion about cross-border projects between two or more North Sea states come into focus, it be-comes essential to develop a well-designed (internationally functional) support instrument that effectively promotes participation of investors in cross-border offshore wind projects. There is a general consensus that a feed-in premium scheme would be the most adequate scheme to support offshore wind generation in the North Sea [52, 53]. Yet the question of what support scheme level is the most appropriate to be applied remains controversial and needs further research. Therefore, the second research question is:

Research Question 2: “What are economic impacts of implementing a joint feed-in premium support scheme on the development of a transnational offshore grid considering short-run variability in wind power and market prices?”

In addition, there are barriers that can pose unanticipated delays in developing compli-cated projects such as the offshore grid in the North Sea. These delays can occur due to technical issues (e.g., unavailability of DC breakers), economic (e.g., supply chain short-ages) and legal conflicts (e.g., heterogeneous permitting criteria). The legal obstacles such as heterogeneous permitting criteria are recognized as the main source for delays. This is particularly true for North Sea region because there are different authorities involved that have different requirements and standards. The complex permitting procedures for cross-border projects are expected to prolong construction timing of the offshore cross-cross-border wind and transmission projects, between two to ten years. Such long potential delays have been blamed for preventing 50% of commercially viable cross-border infrastructure projects from being implemented [54]. Therefore, a TEP framework is required that accounts for the possible impacts of different sources of delays on the optimal grid expansion strategy and timing. Therefore, the third research question that this thesis focuses on is:

Research Question 3: “What are economic impacts of unanticipated delays on the development of a transnational offshore HVDC grid considering short-run variability in wind power and market prices?”

1.6 Research Objectives

Analogous to the previous section, the research objectives of this thesis are divided as fol-lows:

1. objectives in the Techno-Economic Domain

At this level, the thesis focuses on the economically-optimal design of the grid con-sidering technical constraints. Note that no legal constraint is enforced at this level. The objectives can be summarized as follows:

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(a) Provide a comprehensive review of transmission expansion planning, including currently used, state-of-the-art approaches with a focus on TEP in the North Sea.

(b) Develop an optimization framework that yields an optimal design for a VSC-HVDC grid considering short-run variability in wind and price. The proposed formulation includes investment recovery through congestion revenue as an im-plicit strict equality constraint, and allows the consideration of multiple time periods.

(c) Introduce a linearized approximation of HVDC power flow that gives a pricing mechanism that is consistent with the AC driven mechanism.

(d) Propose an iterative algorithm that combines an unsupervised clustering tech-nique with an optimization tool and uses the stochastic properties of some data to cope with the large computational burden of the large-scale optimization problems.

(e) As proof of principle, investigate transmission expansion planning of an VSC-HVDC offshore grid in the North Sea.

2. objectives in the Legal Domain

(a) Identify ‘existing nationally oriented offshore wind support schemes’ and ‘het-erogeneous permitting criteria for offshore projects’ as examples for regulatory conflicts that can hamper the development of the offshore grid in the North Sea area.

(b) Improve the proposed optimization framework to investigate the impact of im-plementing each regulatory example (see 2(a)) on the development of the off-shore infrastructures.

1.7 Modeling Assumptions

The main modeling assumptions made in this thesis are listed in this section.

1.7.1 Transmission Expansion Approach

Two different transmission expansion approaches were considered: 1. Static transmission expansion planning approach.

2. Dynamic transmission expansion planning approach.

In static TEP problems, the solution provides an optimal planning assuming that system expansions are implemented instantly at a certain point in the future. The optimal design can include grid topology, transmission capacities or merely a set of possible candidate rein-forcements to attain a particular objective (e.g., minimize cost, maximize benefit) [55–57]. However, in reality, transmission network developments take place gradually in multiple de-velopment stages, because: 1) building large infrastructures is costly and time consuming,

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1.7 Modeling Assumptions 21 2) other parts of the power system and electricity markets develop in a gradual manner, and 3) disruptive delays can occur due to unforeseen technical and legal complications. There-fore, in addition to the optimal grid design, time restrictions should ideally be included in the analysis. In Chapter 5 and Chapter 6 two static frameworks for transnational offshore in-frastructure expansions are introduced. The frameworks are then illustrated by an example for an offshore grid in the North Sea.

Any static model will fail to provide information regarding the timing of the project development steps. Dynamic Transmission Expansion Planning (DTEP) takes into account temporal continuity of expansion projects. Note that, unlike the models discussed in [58, 59], the term ‘dynamic’ does not merely refer to a series of statically built-up plans. The optimal planning includes development strategy and timing considerations in addition to the sizing and placement of the assets. Although DTEP is computationally-intensive [58], it usually leads to more economically-efficient grid design and development strategy [60]. In Chapter 7, a dynamic framework for solving the TEP problem for a transnational offshore HVDC grid is introduced. This is illustrated by an example for an offshore grid in the North Sea.

1.7.2 Social Cost Curves

Both approaches discussed above are intended to be driven by market historical data in the form of hourly regional cost curves. The social cost (SCt

i) of each zone i during hour t

is defined as cost of generation C(Pt

Gi) minus benefit of consumption B(PDti) [61]. Where

C(Pt

Gi) and B(P

t

Di) are derived respectively, by integrating the area beneath the aggregated

supply and demand bidding curves for a specific zone and a specific operating state, from zero to the point where supply equals demand (see Section 2.3.2). This concept is definable only when there is a price-elasticity of demand [62].

The contribution of each zone in the total social welfare(SWt

i(Pit)) (which equals the

total social cost(SCt

i(Pit)) with an opposite sign) is modeled as a quadratic function of the

power injection of that node:

SCti(Pit) = −SWit(Pit) = ati· Pt

2

i + bti· Pit+ cti (1.1)

where at_i, bt_iand ct_iare the coefficients of social cost curve and are determined for each operating state as explained in Appendix C.1. For my research, I am interested in variations of social welfare. As the solution of the optimal power flow does not depend on the fixed social cost [63], ct_iis excluded from the cost curve formulation and define the incremental

social cost of zone i at hour t as ISCt

i(Pit) = ati· Pt

2

i + bti· Pit as shown in Figure 1.1. The

aggregated incremental social welfare of all price zones reads as:

Φ = −

∑

t∈Oi

∑

∈Z

ISCti(Pit) ·ωt· n(

O

) (1.2)

where

Z

is the set of price zones in the power system.

O

is the set of operating states analyzed. n(

O

) is the number of members of

O

. A vector ωt indicates the influence of the each operating state in

O

, withωt ∈ (0, 1]. The vectorωt _{is a normalized weighting}

factor :∑t∈Oωt= 1, and allows the option of using a set of representative states, as will be

demonstrated in Section 5.4. If all hours in the economic lifetime were considered, every value ofωtwould equal _n₍1_O₎.

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Figure 1.1: A typical incremental social cost curve. P_iminand P_imaxrepresent minimum and maximum power that region i can inject during operating hour t, with the sign convention such that negative injection means import (local load exceeds local generation).

Cost curve coefficients are determined hourly from empirical aggregated supply/demand curves of onshore electricity markets (i.e., APX-NL, APX-UK [64], NordPoolSpot [65], EPEXSpot [66] and Belpex [67]) from April 1, 2011 to March 30, 2012 (8,760 data points). Therefore, the transmission connections and production units being demolished along the planning horizon are included in the analysis.

1.7.3 Network Representation

In this thesis, a linearly-approximated representation of HVDC power flow is included. The approximated HVDC formulation can be determined by rewriting the HVDC power flow of an HVDC interconnector at sending end i as follows:

Fi jt = Ni j· gi j·(vit)2− vti· vtj =  Ni j· gi j 2 ·(vt i)2− (vtj)2 +  Ni j· gi j 2 · vti− vtj 2 (1.3) The first term on the right side of the equation expresses the power flow at the midpoint of the interconnector and the second term represents half the line losses. Chapter 5 shows that neglecting the second term of (1.3) introduces no significant error to the power flow calculation and yields the HVDC power flow as:

Fi jt ≈  Ni j· gi j 2 · uti− utj (1.4) where ut_i= (vt i) 2

. It will also show, with no significant loss of accuracy, that linearly approx-imating the HVDC power flow simplifies the pricing mechanism and makes it consistent with its existing AC onshore grid counterpart.

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1.7 Modeling Assumptions 23

1.7.4 Additional Modeling Assumptions

Additional modeling assumptions are presented within the following:

1. A zonal market model with electricity markets that are perfectly competitive was considered. The buyers and sellers are assumed to make their bids and offers within a double auction market with a single market price per zone.

2. For simplicity, it was assumed that the aggregated supply and demand bidding curves of each onshore zone are linear functions of the power generation/consumption of that zone.

3. Only maximum and minimum import and export power constraints per zone were enforced. No inter-temporal constraints on generation were considered. Intra-zonal transmission constraints were neglected.

4. Only HVDC connections were considered.

5. For the sake of simplicity, the cost of converters and interconnectors were represented as a linear function of the length and rated capacity of interconnectors. In a similar way, where applicable, the investment cost of constructing offshore wind farms was considered as a linear function of the total installed wind capacity.

6. To keep the problem linear and continuous, every interconnector was assumed to build from a number of identical bi-polar cables Ni jeach with the capacity of 2· Kb. Here

2· Kb (in MW) denotes the rated bi-pole capacity of the identical cables.

7. Investment recovery in the offshore grid was permitted through regulation-exempted mechanisms, e.g., merchant transmission.

8. Except for congestion revenues, other transmission charges (such as transmission tar-iffs) were not considered in this thesis.

9. Since the focus was on the dynamic interactions between financial- and legal con-straints and transmission investments, also for the sake of simplicity, long-run uncer-tainties (demand growth, fuel price changes) were not considered in this thesis. 10. Pursuing simplicity, contingencies were not considered in this analysis. However,

security constraints, as well as cost of security could be incorporated in the cost cal-culations, for example [68–71].

11. The proposed zonal pricing is a variation of spot pricing of transmission cost pricing first developed by Schweppe et al. [31].

12. Finally, a centralized decision-making entity (e.g., centralized offshore grid system operator), regulated to maximize the social welfare and to provide non-discriminatory transmission service, was considered.

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RA 1A: Analysis of Legal Basis

RA 2: Market and Regulatory Design

RA 3: Grid Code Harmonization

RA 2: Offshore Grid Construction and Operation RA 2: Balancing Regimes M ode ll ing Int erfa ce Technical Design of Offshore Grid

Project 1: Leader RUG Project 2: Leader TU Delft

RA 2 - 5 Operational Rules of offshore Grid RA 2 - 5 Market/Flow Simulation RA 1B Outcome Indices: reliability/economics/environmental

RA 6: Dissemination to Policy Makers

Feedback

Figure 1.2: Overview of inter-relation between the projects and research activities (RA)

1.8 Embedding in Multi-Disciplinary Project

The research presented in this thesis has been carried out under project titled “Develop-ing a Transnational Electricity Infrastructure Offshore: Design, Operations and Regulatory Solutions”. It is collaborative project funded by “de Nederlandse Organisatie voor Weten-schappelijk Onderzoek (The Netherlands Organisation for Scientific Research (NWO))”.

The aim of the project was to develop and analyze scenarios for the development of a trans-boundary / international offshore electricity grid in the North Sea. For this purpose, the program focused on the design, operation and regulatory framework for the establishment of an economically-efficient and reliable offshore electricity grid, taking into account the need to achieve a well-functioning internal energy market in Europe. The main issue it attempts to address is how an offshore grid should be designed, operated and regulated.

The research program consists of two research projects. Figure 1.2 shows the project overview and the interaction between the two research projects.

Project 1 (carried out by the Rijksuniversiteit Groningen (RUG) in The Netherlands) concentrated on the legal aspects of developing and operating transnational electricity off-shore infrastructure. It applied a legal analysis on several levels, i.e. the level of international law, the level of EU law and the level of national law. Project 2 (carried out by Delft Uni-versity of Technology (TU Delft) in The Netherlands) involved a technical-, economical-and operational analysis of the various implementation options for transnational electricity

Transmission Expansion Planning of Transnational Offshore Grids: A Techno-Economic and Legal Approach Case Study of the North Sea Offshore Grid

Transmission Expansion Planning of

Transnational Offshore Grids

A Techno-Economic and Legal Approach

Case Study of the North Sea Offshore Grid

Transmission Expansion Planning of

Transnational Offshore Grids

A Techno-Economic and Legal Approach

Case Study of the North Sea Offshore Grid

Contents

Summary

Samenvatting

Acknowledgements

Chapter 1

Introduction

1.1

Societal Context

1.2

Chapter Organization

1.3

Research Motivation

1.4

State-of-Art in Transmission Expansion Planning

1.5

Problem Definition and Research Questions

1.5.1

Topic 1: Techno-Economic Domain - Determining the Optimal

Design of the Grid Offshore

1.5.2

Topic 2: Institutional Domain - Investigating the Impacts of

Im-plementing Heterogeneous Legal Regimes

1.6

Research Objectives

1.7

Modeling Assumptions

1.7.1

Transmission Expansion Approach

1.7.2

Social Cost Curves

∑

∑

O

Z

O

O

O

O

1.7.3

Network Representation

1.7.4

Additional Modeling Assumptions

1.8

Embedding in Multi-Disciplinary Project