German-Nordic Integration: Economic and Climate Effects

Analysis of the positive effects and costs of a stronger integration of the Nordic and German power systems

  • Project Duration: 08/2014 - 06/2015

The power system in the Nordic countries and continental Europe is characterised by an increasing share of fluctuating, renewable power production.  The transformation of this supply system requires greater flexibility and back-up capacity to absorb the increase in fluctuating power and to balance this out across regions. Due to their complementary mix of power production, a stronger integration of the Nordic and German power systems will have positive effects for production as well as for the economy (welfare). The cross-regional balancing effects of feeding fluctuating renewables into the system (especially wind and photovoltaic power), exporting surplus production, and the access to backup capacity through the high share of hydroelectric power in Norway and Sweden, will contribute to a more efficient integration of the system. The goal of this joint project between Agora Energiewende and Global Utmaning is an analysis and discussion of the economic consequences and climate-related effects of stronger integration of the Nordic and German power systems.  

The study combines a quantitative analysis of the power system (work package 1) with a qualitative analysis of the macroeconomic distribution effects (work package 2). A stronger integration means in particular an increase in the cross-border transmission capacity between Germany and the Nordic countries. In order to depict potential paths that different developments in these countries could take, the report uses a carefully chosen number of scenarios as the basis for its analysis. Work package 1 contains a quantitative analysis of the costs, price effects and trade flows using the framework of a market simulation. The quantification of costs includes investment costs in additional network infrastructure. The positive effects of greater market integration include savings in fuel and C02, as well as (averted) shut-downs of renewable energy facilities and averted greenhouse gas emissions. Work package 2 considers the resulting macroeconomic effects from a qualitative perspective. This comprises distributive effects between countries as well as between different stakeholders (for example producers, households, industry) within one country. The contribution of this project is found in its combination of micro- and macroeconomic analyses of European market integration.

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