Renewable Energy and Transmission Networks - Green Energy and Efficiency: An Economic Perspective - page 379

construction given the large scale of investments envisaged and existing budget
constraints. In the following paragraphs we shall describe what should be the basic
features of a network cost allocation mechanism in order for its results not to be
challenged by affected parties. Desirable properties of a cost allocation scheme from
its conception to its implementation are also discussed in [ 19 , 25 ].

4.1 Allocation to Bene ciaries

Computing a fair allocation of the cost of transmission assets involves making
shares of the costs born by agents or areas proportional to bene ts. Bene ciaries are

any network users whose expected expenditures or pro ts change as a result of the

project, taking into account the value of increased reliability and any other not-
purely economic bene ts. This principle has been accepted in numerous systems.

Estimates of the bene ts that agents will obtain from network reinforcements must

somehow be taken into account in the planning process.
A transmission project is economically justi

ed if the bene ts it creates exceed

its costs. But bene ts may be either positive or negative (losses). Reinforcements

normally reduce price differences among the parts of the system by increasing the
price of exporting areas and reducing it in importing ones. Then, a transmission
project could result in losses on generators in previously high-price areas or on load
in previously low-price areas. In addition, because of the aforementioned reduction
in price differences, these projects may reduce the economic value of any existing
transmission rights and contracts. What is more, some entities might suffer losses
because of environmental harm. Regulators should approve regulated network
reinforcement projects with positive net bene ts that exceed investment costs, even

if they cause losses on some agents. However, they should disapprove projects with
gross bene ts, once

considered the negative ones, are below the investment costs. This means not
allowing the construction of some projects for which those who receive bene

ts that exceed the investments costs, but whose net bene

ts

would be willing to cover the costs.
Dividing a project ' s costs among network users in proportion to their bene ts is

generally perceived as equitable. And if a project ' s bene ts exceed costs, all ben-

e ciaries will be better off and less likely to oppose progress on the project.

Conversely, if a project

ts, it will be impossible to allocate
costs in such a way as to make all entities better off. Thus, adopting the bene

' s costs exceed its bene

ciary-
pays principle should help to achieve the green light from relevant partners to
needed projects. Note that failure to consider all positive and negative bene ts in

the cost allocation process could result in some agents blocking the construction of
lines. Thus, even if some bene

cult to monetize, like the environmental or
visual impact of lines built in an area, an effort should be made in this regard.
An alternative to the bene

ts are dif

ciary-pays principle is the socialization of investment
costs. Socialization does not produce locational signals driving the decision of
agents on where to install generation or load. Thus, socialization favors the best