Grid extension in German backyards: a game-theory rationale

A substantial extension of the electricity grid seems to be necessary in Germany in the coming decades for technical, economic, and ecological reasons. The increased usage of electricity from environmentally conscious sources is not undisputed and the question of where and how to extend the grid is at the centre of a controversial public discussion. One crucial point in this discussion concerns the fair sharing of the costs and benefits of such an extension. It is necessary to create a fair compensation mechanism. Therefore, an innovative mechanism is proposed in this paper that consists of cooperative game theory as well as auction elements. We interpret the German grid extension as a cooperative cost reduction game that allows the identification of fair cost shares and compensation payments. To solve the problem of non-cooperative behaviour, we propose the involvement of a sealed-bid auction. We show that this novel procedure is incentive compatible.