Yesterday, Mediterranean Transmission Operator (Med-TSO) said that it has completed a cost-benefit analysis with the Mediterranean that will help it develop a process for Cross Border Cost Allocation (CBCA).
Med-TSO said this is a significant step towards completing the entire Cost-Benefit Analysis (CBA) process, aimed at evaluating benefits and costs of the projects studied by Med-TSO and defining potential risks associated with the project.
The proposed CBCA criteria will be applied to complete the Cost-Benefit Analysis carried out in the “Master Plan of Mediterranean Interconnections 2020” that will be delivered in the third quarter of 2020.
The CBCA process will help the organization tackle some of the main issues and challenges that may occur while developing new interconnection projects related to:
- different regulatory frameworks existing in the host countries;
- the need to identify all of the participating countries, i.e. other possible beneficiaries that could join alongside the host countries;
- level of participation and associated regulations for sharing costs, benefits and risks;
- uncertainties on the perimeter of interconnection project costs to be shared;
- criteria for allocating the interconnection capacity and whether or not it has to be based on market rules;
- finally, additional transmissions costs, including transmission losses and hosting flows.
Med-TSO said it tested these guidelines through a number of pre-selected case study clusters and used two different measurement in accordance with the recommendations of the European Agency for the Cooperation of Energy Regulator (ACER).
The case study clusters were defined as:
- Morocco and Portugal
- Algeria and Spain
- Tunisia and Italy
- Egypt and Jordan
- Greece, Turkey, and Bulgaria
Method 1 used the net impact of a project, calculated as the project Social Economic Welfare (SEW) minus its associated losses. It defined a threshold of 10% as the sum of all the national net impacts and identified the countries having a net impact above such a threshold. The possible level of participation was then calculated proportionally to each country excess of net impact over the defined threshold.
Method 2 used the net impact of a project as the Net Present Value (NPV) at the national perimeter, i.e. NPV of the cash flows associated with Social Economic Welfare, losses, CAPital Expenditures (CAPEX), and OPerational Expenditures (OPEX). The need for contribution or participation by a country was quantified based on the sum of the negative net impacts of the hosting countries.
Findings of the two methods resulted in compatible outcomes in terms of identified participants and quantified level of their participation to costs. However, Method 2 proved to bring in additional information for quantifying compensation, where required. Finally, it should also be noted that in most of the analyzed cases, non-hosting TSOs also qualified as participants as neighboring non-hosting TSOs.
With this CBCA mechanism established and successfully tested, Med-TSO has taken a major step in its efforts to promote the establishment of a harmonized power system across the Mediterranean.
The work carried out so far should be considered as the basis for setting up a transparent and clear framework for evaluating projects and enable cross-border dialogue. Med-TSO will continue working jointly with MedReg on a transparent and competitive regulatory framework with a view to ensuring an interoperated and interconnected electricity market in the Mediterranean region.