EIB Working Papers 2012 / 04

This study analyzes issues related to “green”, i.e. low-carbon electricity investment in Europe. While traditionally the focus of attention was on green transmission lines, it has become clear in the course of this study that even though high-voltage electricity transmission is an important element of the decarbonization, there is no green transmission as such. Rather, transmission is greened by decisions on the upstream energy mix; in an extreme view, transmission investment is but a residual from generation decisions, because the choice of the generation portfolio, and its location, directly implies which transmission infrastructure is required. Therefore, green investment necessarily entails an integrated vision of generation and transmission (as well as storage, demand-side flexibility, etc., which for the sake of simplicity we consider to be part of generation). Both require a specific approach to investment since purely market-based competition will not bring about the energy mix that Europe has opted for, e.g. a low carbon energy mix, sketched out in its Energy Roadmap 2050. The objective of this study, hence, is to clarify the role of green investment in the context of the Energy Roadmap 2050, to discuss the estimates of the investment challenge, and to outline technical-economic development scenarios (storylines) for further development. This is done both conceptually and through some empirical evidence. The study discusses various estimates of the investment challenge, finding both a high variance of these estimates, and that financing generation investment is the real challenge. Investment strategies will differ significantly between the stylized development scenarios that we sketch out, varying the focus between European-wide and more nationally oriented strategies, and defining different levels of cross-border cooperation; as of today, it is unclear which scenario will dominate. We conclude that the issue at stake is not overor underinvestment in the European electricity sector as such, but that different development paths have different implications for generation and transmission infrastructure, and for the financing thereof. Finally, the investment needs must be assessed in the light of the political and institutional scenario that is expected to occur. JEL classification: L51, L94 Christian von Hirschhausen, Workgroup for Infrastructure Policy (WIP), Berlin University of Technology von Hirschhausen Green Electricity Investment in Europe WP 04/2012 2 Table of