Reaping the full benefits from cross-border interconnection typically requires reinforcement of national networks. When the relevant parts of the networks are complements, a lack of coordination between national transmission system operators typically results in investment below optimal levels in both interconnectors and national infrastructure. A subsidy to financially sustain interconnector building is not sufficient to restore optimality; indeed, even when possible, such subsidisation may have to be restrained so as not to encourage cross-border capacities that will not be fully utilised due to lack of investment in national systems.
electrical grid; interconnector; externality; regulation; regional; cooperation;
- H77: Intergovernmental Relations • Federalism • Secession
- K23: Regulated Industries and Administrative Law
- L51: Economics of Regulation
- L94: Electric Utilities
TSE Working Paper, n. 22-1315, March 2022