ABSTRACT

This chapter provides an overview of the theoretical background to the discussion on interconnection of electricity grids, highlighting the associated benefits and costs, as well as some factors affecting the quantification of these benefits and costs. The costs are predominant made up of the initial capital investment, plus future operation and maintenance costs over the investment’s planned lifespan, which will likely constitute only a small part of the total. The benefits, however, are far less well-defined and hard to derive due to challenges in attaching monetary values for some benefits. In addition, there is no guarantee that positive welfare benefits will actually arise from such an investment.