KG
K. Gün
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Unlocking the North Sea
Cross-border collaboration mechanism for effective sharing of costs, benefits, and risks of North Sea electricity infrastructure
Expanding offshore wind in the North Sea is central to Europe’s ambition to deliver affordable, clean, and secure energy. However, the benefits of offshore wind and interconnector investments are distributed cross-border through market coupling, while the associated costs remain largely national, borne by consumers through grid tariffs and by government budgets. This fundamental mismatch between where benefits accrue and where costs fall has proven politically difficult: existing cross-border cost allocation frameworks have defaulted to the territorial principle in over 70% of decisions, meaning each country simply pays for infrastructure within its own borders, producing little to no cross-border redistribution in practice. This thesis investigates what cross-border collaboration model would
enable the effective development of a large-scale offshore electricity system in the North Sea, while reflecting participating countries’ differing costs, benefits, and risks.
To address this, a two-country partial-equilibrium model of coupled electricity markets is developed, in which investment decisions are modelled as a non-cooperative Nash game across eight probabilistically weighted operating regimes. A set of cost-sharing mechanisms is systematically evaluated on how well they achieve collectively optimal outcomes, distribute costs fairly, and create room for countries to reach agreement. These include the equal-split and benefit-proportional ex-ante allocation rules; a cross-border Contract
for Difference for transmission, a financial instrument that redistributes costs between countries after the fact based on realized benefits; and a cross-border generation Contract for Difference, the standard government support scheme used across Europe to guarantee offshore wind developers a fixed revenue, here extended so that two national governments jointly act as counterparty rather than one.
The results consistently show that countries underinvest relative to what would be optimal for the collective system as a whole under all mechanisms. Benefit-proportional allocation outperforms the equal split by better reflecting realized benefits, bringing agreed expansion closer to the system optimum. The transmission CfD yields the largest improvement in investment efficiency but is highly sensitive to strike price calibration and exposes the non-host country to obligations that may be unknown and politically difficult prior to
project realization. The generation CfD expands the feasible negotiation space, and combining instruments does not monotonically improve outcomes. Crucially, no mechanism produces mutually agreeable investment outcomes that are not sensitive to divergent expectations about future market conditions, revealing that institutional alignment on shared forecasting frameworks is a necessary complement to any financial instrument.
The proposed collaboration model uses benefit-proportional allocation ex-ante, applied to as broad a cost scope as possible, complemented by a cyclically calibrated transmission CfD with an ex-ante defined divergence threshold and correction cap. These building blocks should be embedded earlier in the planning process as a structuring constraint rather than a final redistributive step, and should be pursued first on the basis of established bilateral trust before scaling to the broader North Sea.
...
enable the effective development of a large-scale offshore electricity system in the North Sea, while reflecting participating countries’ differing costs, benefits, and risks.
To address this, a two-country partial-equilibrium model of coupled electricity markets is developed, in which investment decisions are modelled as a non-cooperative Nash game across eight probabilistically weighted operating regimes. A set of cost-sharing mechanisms is systematically evaluated on how well they achieve collectively optimal outcomes, distribute costs fairly, and create room for countries to reach agreement. These include the equal-split and benefit-proportional ex-ante allocation rules; a cross-border Contract
for Difference for transmission, a financial instrument that redistributes costs between countries after the fact based on realized benefits; and a cross-border generation Contract for Difference, the standard government support scheme used across Europe to guarantee offshore wind developers a fixed revenue, here extended so that two national governments jointly act as counterparty rather than one.
The results consistently show that countries underinvest relative to what would be optimal for the collective system as a whole under all mechanisms. Benefit-proportional allocation outperforms the equal split by better reflecting realized benefits, bringing agreed expansion closer to the system optimum. The transmission CfD yields the largest improvement in investment efficiency but is highly sensitive to strike price calibration and exposes the non-host country to obligations that may be unknown and politically difficult prior to
project realization. The generation CfD expands the feasible negotiation space, and combining instruments does not monotonically improve outcomes. Crucially, no mechanism produces mutually agreeable investment outcomes that are not sensitive to divergent expectations about future market conditions, revealing that institutional alignment on shared forecasting frameworks is a necessary complement to any financial instrument.
The proposed collaboration model uses benefit-proportional allocation ex-ante, applied to as broad a cost scope as possible, complemented by a cyclically calibrated transmission CfD with an ex-ante defined divergence threshold and correction cap. These building blocks should be embedded earlier in the planning process as a structuring constraint rather than a final redistributive step, and should be pursued first on the basis of established bilateral trust before scaling to the broader North Sea.
...
Expanding offshore wind in the North Sea is central to Europe’s ambition to deliver affordable, clean, and secure energy. However, the benefits of offshore wind and interconnector investments are distributed cross-border through market coupling, while the associated costs remain largely national, borne by consumers through grid tariffs and by government budgets. This fundamental mismatch between where benefits accrue and where costs fall has proven politically difficult: existing cross-border cost allocation frameworks have defaulted to the territorial principle in over 70% of decisions, meaning each country simply pays for infrastructure within its own borders, producing little to no cross-border redistribution in practice. This thesis investigates what cross-border collaboration model would
enable the effective development of a large-scale offshore electricity system in the North Sea, while reflecting participating countries’ differing costs, benefits, and risks.
To address this, a two-country partial-equilibrium model of coupled electricity markets is developed, in which investment decisions are modelled as a non-cooperative Nash game across eight probabilistically weighted operating regimes. A set of cost-sharing mechanisms is systematically evaluated on how well they achieve collectively optimal outcomes, distribute costs fairly, and create room for countries to reach agreement. These include the equal-split and benefit-proportional ex-ante allocation rules; a cross-border Contract
for Difference for transmission, a financial instrument that redistributes costs between countries after the fact based on realized benefits; and a cross-border generation Contract for Difference, the standard government support scheme used across Europe to guarantee offshore wind developers a fixed revenue, here extended so that two national governments jointly act as counterparty rather than one.
The results consistently show that countries underinvest relative to what would be optimal for the collective system as a whole under all mechanisms. Benefit-proportional allocation outperforms the equal split by better reflecting realized benefits, bringing agreed expansion closer to the system optimum. The transmission CfD yields the largest improvement in investment efficiency but is highly sensitive to strike price calibration and exposes the non-host country to obligations that may be unknown and politically difficult prior to
project realization. The generation CfD expands the feasible negotiation space, and combining instruments does not monotonically improve outcomes. Crucially, no mechanism produces mutually agreeable investment outcomes that are not sensitive to divergent expectations about future market conditions, revealing that institutional alignment on shared forecasting frameworks is a necessary complement to any financial instrument.
The proposed collaboration model uses benefit-proportional allocation ex-ante, applied to as broad a cost scope as possible, complemented by a cyclically calibrated transmission CfD with an ex-ante defined divergence threshold and correction cap. These building blocks should be embedded earlier in the planning process as a structuring constraint rather than a final redistributive step, and should be pursued first on the basis of established bilateral trust before scaling to the broader North Sea.
enable the effective development of a large-scale offshore electricity system in the North Sea, while reflecting participating countries’ differing costs, benefits, and risks.
To address this, a two-country partial-equilibrium model of coupled electricity markets is developed, in which investment decisions are modelled as a non-cooperative Nash game across eight probabilistically weighted operating regimes. A set of cost-sharing mechanisms is systematically evaluated on how well they achieve collectively optimal outcomes, distribute costs fairly, and create room for countries to reach agreement. These include the equal-split and benefit-proportional ex-ante allocation rules; a cross-border Contract
for Difference for transmission, a financial instrument that redistributes costs between countries after the fact based on realized benefits; and a cross-border generation Contract for Difference, the standard government support scheme used across Europe to guarantee offshore wind developers a fixed revenue, here extended so that two national governments jointly act as counterparty rather than one.
The results consistently show that countries underinvest relative to what would be optimal for the collective system as a whole under all mechanisms. Benefit-proportional allocation outperforms the equal split by better reflecting realized benefits, bringing agreed expansion closer to the system optimum. The transmission CfD yields the largest improvement in investment efficiency but is highly sensitive to strike price calibration and exposes the non-host country to obligations that may be unknown and politically difficult prior to
project realization. The generation CfD expands the feasible negotiation space, and combining instruments does not monotonically improve outcomes. Crucially, no mechanism produces mutually agreeable investment outcomes that are not sensitive to divergent expectations about future market conditions, revealing that institutional alignment on shared forecasting frameworks is a necessary complement to any financial instrument.
The proposed collaboration model uses benefit-proportional allocation ex-ante, applied to as broad a cost scope as possible, complemented by a cyclically calibrated transmission CfD with an ex-ante defined divergence threshold and correction cap. These building blocks should be embedded earlier in the planning process as a structuring constraint rather than a final redistributive step, and should be pursued first on the basis of established bilateral trust before scaling to the broader North Sea.
Bachelor thesis
(2023)
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A. van Breukelen García, F. Cerbino, S.M.D. Stevens, J.P.G. Dubois, T.G. Esser, K. Gün, E.E. Jerez, D.N. Lacal Ip, R. van Leeuwen, D. Olimid, A.I.B. Smit, R. Schmehl, S.J. van Elsloo, R. Jain
The aim of this executive overview is to summarise the content of this extensive report regarding the design of an Landing, Launching and Storage (LLS) system for a soft kite Airborne Wind Energy (AWE) system.
An innovative idea does not translate automatically to financial gain. With new technologies, such as AWEs it is crucial to assess the potential market for a product and the associated economic performance. Four market segments exist for energy generation: on-shore on-grid, on-shore off-grid, off-shore on-grid and off-shore off-grid. AWE performs best in on-shore offgrid applications due to its high mobility, higher capacity factor compared to wind and relatively lower land usage. AWE soft kites are currently targeting 100 kW to 500 kW range, which is currently dominated by medium-power diesel generators. ...
An innovative idea does not translate automatically to financial gain. With new technologies, such as AWEs it is crucial to assess the potential market for a product and the associated economic performance. Four market segments exist for energy generation: on-shore on-grid, on-shore off-grid, off-shore on-grid and off-shore off-grid. AWE performs best in on-shore offgrid applications due to its high mobility, higher capacity factor compared to wind and relatively lower land usage. AWE soft kites are currently targeting 100 kW to 500 kW range, which is currently dominated by medium-power diesel generators. ...
The aim of this executive overview is to summarise the content of this extensive report regarding the design of an Landing, Launching and Storage (LLS) system for a soft kite Airborne Wind Energy (AWE) system.
An innovative idea does not translate automatically to financial gain. With new technologies, such as AWEs it is crucial to assess the potential market for a product and the associated economic performance. Four market segments exist for energy generation: on-shore on-grid, on-shore off-grid, off-shore on-grid and off-shore off-grid. AWE performs best in on-shore offgrid applications due to its high mobility, higher capacity factor compared to wind and relatively lower land usage. AWE soft kites are currently targeting 100 kW to 500 kW range, which is currently dominated by medium-power diesel generators.
An innovative idea does not translate automatically to financial gain. With new technologies, such as AWEs it is crucial to assess the potential market for a product and the associated economic performance. Four market segments exist for energy generation: on-shore on-grid, on-shore off-grid, off-shore on-grid and off-shore off-grid. AWE performs best in on-shore offgrid applications due to its high mobility, higher capacity factor compared to wind and relatively lower land usage. AWE soft kites are currently targeting 100 kW to 500 kW range, which is currently dominated by medium-power diesel generators.