Renewable Energy and Transmission Networks - Green Energy and Efficiency: An Economic Perspective - page 371

capabilities. At the same time, the regulation in place should provide assurance to
potential network investors that they will be able to recover the cost of the
investments and will make reasonable pro

ts out of them.
As previous research publications on the nancing of large infrastructure

projects in multinational environments have pointed out, see for instance

Newbery et al. [ 17 ], targeted nancial support from funding entities focused on

regional cooperation should address projects of regional signi cance affecting a

large number of systems in the region and/or featuring innovative technologies that
are, therefore, not fully mature yet and might not be part of a formal regional plan.
Regional cooperation funds are limited by their nature. Therefore they should be
spent carefully to encourage the construction of meaningful projects that have

culties, perhaps because of a lack of agreement about the allocation of
the cost of the project among the affected systems. These funds could be addressed
to close any

nancing dif

nancial gap that may exist to recover the total costs of the project.
It is of essence that the regulation governing the development, and the cost
allocation and recovery of the regional grid should provide certainty to potential
investors that they will be able to make reasonable returns on their investments.
This requires having regulation that is as stable as possible but, at the same time,
results in an allocation of the cost of reinforcements to the several systems in the
region that they perceive as fair, so that none of them opposes the construction of
the assets involved, see [ 2 ]. This will be discussed in Sect. 4 of this chapter.

2.2 Integration of Long-Term Transmission Contracts
in Expansion Planning

In a context with very high penetration levels of RES, market prices over long
periods of time will be very low, while during those periods when RES generation
is not available, prices will be much higher. Then, revenues of generators partici-
pating in short-term energy markets will be very volatile and, to some extent,
unpredictable in the short term. This should not be a problem for the investors, as
far as the predicted income from market prices in the medium- and long-term results
in an adequate level of remuneration. However, it may be perceived as a relevant
risk by

nancing institutions, which could make access to funds to support these
projects signi cantly more expensive. A more serious problem is the impact of

regulatory uncertainty, since at least for the time being, the level of penetration of
renewables directly depends on regulatory decisions. This motivates that both
conventional and RES generation will need to hedge their revenues against these
uncertainties. Otherwise, lack of con

dence about future revenues might probably
deter potential investors from undertaking the construction of all types of generation
whose revenues are not suf ciently guaranteed by regulation.

Generation capacity mechanisms could be implemented to allow potential
investors to have more certainty over their revenues. Several mechanisms to
achieve this exist, from capacity markets to bilateral contracts signed between the