Cost benefit analysis in the context of the energy infrastructure package

Abstract

This report was produced as part of the THINK project. Cost Benefit Analysis (CBA) has proven to be a useful tool to support the economic appraisal of important projects in many sectors. In the energy domain, a single CBA method has been proposed at EU level to evaluate and compare electricity transmission and storage projects from different countries, which is unprecedented anywhere in the world. The objective of this THINK report has been to advise the European Commission (DG Energy) on the development of this method in the context of the Energy Infrastructure Package. We provide recommendations for the scope of the analysis, as well as the calculation of the net benefit. We also discuss how the method can be used to rank projects. We conclude that the method that has been proposed by the European Network of Transmission System Operators for Electricity (ENTSO-E) is an important step in the right direction, but it is still possible to improve. A key recommendation is that the project ranking should be primarily based on the monetized net benefit, and to calculate this net benefit, the CBA should concentrate on a reduced list of effects.