Louvain School of Management How to overcome financial barriers to the participation of Europe in a global electrical grid? A feasibility study on a ‘Global Grid’ Auteur : Maximilien de Le Hoye Promoteur(s) : Sabine Denis Année académique 2019-2020 i First and foremost, I would like to thank Prof. Sabine Denis for her continuous support throughout my thesis. I was fortunate to receive spot-on advices and remarks from before idea sprouting to final submission. I am equally grateful for the flexibility and understanding she has shown during this time. I would also like to take the opportunity to thank Mr Damien Ernst from whom I have got the topic idea and who has shared a lot of documentation with me. Further, I would like to thank Mr Brice Libert, Mr Samson Hadush, Mr Bert Maes, Mr Kristof Sleurs, Mr Jan Kostevc, Mr Jan Hoogstraaten, Mr Gérald Sanchis, Mr Maximilian Rinck, Mr Oliver Koch and Ms Isabelle Gerkens for their time and the knowledge they shared with me. It was at times difficult to communicate due to faltering internet connections and I am thankful they took time to answer my remaining questions further by email or to send me additional resources or contact details. Finally, I would like to thank my friends and family from the bottom of my heart. This thesis has been a real journey at many levels, and I could not have done it without them. Special remarks of gratitude go to my parents, my sister, my grandmother and my friend Marie-Charlotte. It always seems impossible until it’s done Nelson Mandela ii Table des matières List of abbreviations ................................................................................................................................. i Introduction ............................................................................................................................................. 3 Literature review ..................................................................................................................................... 4 The concept of a global electrical grid ................................................................................................ 4 The importance of energy for society .................................................................................................. 5 The energy problem ............................................................................................................................. 9 Renewable energies: benefits and setbacks ....................................................................................... 15 Advantages and challenges of a global electrical grid ...................................................................... 18 Advantages .................................................................................................................................... 18 Challenges to the realization of the global grid: ............................................................................ 21 Financing a global electrical grid ...................................................................................................... 22 Background information on electricity transmission ..................................................................... 23 Main investment schemes.............................................................................................................. 24 Institutional context ....................................................................................................................... 26 Finance basics ................................................................................................................................ 29 Electricity and capacity markets .................................................................................................... 31 Financial barriers to transmission investments .................................................................................. 32 General barriers ............................................................................................................................. 32 Barriers inherent to regulated investments .................................................................................... 37 Barriers inherent to merchant investments .................................................................................... 40 Potential solutions ............................................................................................................................. 43 Alternative/Hybrid schemes .......................................................................................................... 49 Concluding remarks from the literature analysis ........................................................................... 49 Practical part .......................................................................................................................................... 51 Methodology ..................................................................................................................................... 51 Interviews .......................................................................................................................................... 51 Results ............................................................................................................................................... 52 Main barriers to the participation of Europe to a global electrical grid ......................................... 52 Financial barriers to the participation of Europe to a global electrical grid .................................. 58 Solutions ........................................................................................................................................ 67 Conclusion ............................................................................................................................................. 72 References ............................................................................................................................................. 77 Appendices ............................................................................................................................................ 80 iii Table of illustrations Figure 1: Example of a global electrical grid ............................................................................................ 5 Figure 2: GDP and power consumption .................................................................................................. 8 Figure 3: Energy inequality ...................................................................................................................... 9 Figure 4: Human Development Index and energy consumption .......................................................... 11 Figure 5: GDP/capita and electricity usage ........................................................................................... 12 Figure 6: Greenhouse gas emissions per energy type ........................................................................... 15 Figure 7: Energy Return on Investment per energy source .................................................................. 16 Figure 8: Private and social revenues of interconnection capacities .................................................... 26 Figure 9: Electricity exchange timeline.................................................................................................. 32 1 List of abbreviations ACER: Agency for the Cooperation of Energy Regulators ADP: Adenosine Diphosphate ATP: Adenosine Triphosphate CAPEX: Capital Expenditure CEER: Council of European Energy Regulators CIGRE: Conseil International des Grands Réseaux Electriques CPI: Consumer Price Index CREG: Commission de Régulation de l’Electricité et du Gaz CRR: Congestion Revenue Rights DG ENERGY: Directory General Energy of the European Commission EC: European Commission EGI: Elia Grid International ENTSOE: European Network for Transmission System Operators for Electricity EROI: Energy Return On Investment EU: European Union FTR: Financial Transmission Rights GDP: Gross Domestic Profit GEI: Global Energy Interconnection GEIDCO: Global Energy Interconnection Development and Cooperation Organization GENI: Global Energy Network Institute HDI: Human Development Index HVDC: High-voltage direct current IEM: Internal Energy Market ISO: Independent System Operator MENA: Middle East-North Africa MS(s): Member State(s) MTI: Merchant Transmission Investment NIMBY: not-in-my-backyard opposition NRA: National Regulatory Authority 2 PCI(s): Project(s) of Common Interest RAB: Regulatory Asset Base RES(s): Renewable Energy Sources SDG(s): Sustainable Development Goal(s) TCC: Transmission Congestion Contracts TEN-E: Trans-European Networks for Energy TO: Transmission Owner TSO: Transmission System Operator TYNDP: Ten-Year Network Development Plan UN: United Nations USA: United States of America USD: United States Dollar WHO: World Health Organization WACC: Weighted Average Cost of Capital 3 Introduction Our world is facing unprecedented challenges. Among them are the climate crisis and the need to decarbonize energy. These problems require systemic changes that will shape societies and the way they function. I believe one must be brave and propose bold solutions to tackle these issues. This is exactly what I enjoyed from Damien Ernst’s talk at a conference I had organized with my student association Academics for Development in Louvain-la-Neuve. To solve problems from current energy systems and remove barriers to the development