Minimising system costs: reforming European transmission charges and renewable electricity contracts

Ambitious European energy plans envisage a large increase in Variable Renewable Electricity (VRE), often located distant from demand and congesting existing transmission. Many countries recognise the importance of better locational signals for investment and operation, and possible changes to VRE support systems to reduce risk and cost. This article argues that an efficient low-carbon transition requires a suitable portfolio of reforms to transmission and market pricing and VRE support design, with different combinations suitable when some options (like spatial transmission charges or locational wholesale pricing) are ruled out. Forward-looking spatial transmission contracts offer the simplest decentralised solution for least-cost VRE expansion plans, failing which spatial planning may be needed to coordinate transmission delivery with VRE commissioning