Modelling the Transition towards a Carbon-Neutral Electricity System—Investment Decisions and Heterogeneity

Jinxi Yang, Christian Azar and Kristian Lindgren
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Jinxi Yang: Department of Space, Earth and Environment, Chalmers University of Technology, SE-412 96 Gothenburg, Sweden
Christian Azar: Department of Space, Earth and Environment, Chalmers University of Technology, SE-412 96 Gothenburg, Sweden
Kristian Lindgren: Department of Space, Earth and Environment, Chalmers University of Technology, SE-412 96 Gothenburg, Sweden

Energies, 2021, vol. 15, issue 1, 1-21

Abstract: To achieve the climate goals of the Paris Agreement, greenhouse gas emissions from the electricity sector must be substantially reduced. We develop an agent-based model of the electricity system with heterogeneous agents who invest in power generating capacity under uncertainty. The heterogeneity is characterised by the hurdle rates the agents employ (to manage risk) and by their expectations of the future carbon prices. We analyse the impact of the heterogeneity on the transition to a low carbon electricity system. Results show that under an increasing CO 2 tax scenario, the agents start investing heavily in wind, followed by nuclear and to some extent in natural gas fired power plants both with and without carbon capture and storage as well as biogas fired power plants. However, the degree to which different technologies are used depend strongly on the carbon tax expectations and the hurdle rate employed by the agents. Comparing to the case with homogeneous agents, the introduction of heterogeneity among the agents leads to a faster CO 2 reduction. We also estimate the so called “cannibalisation effect” for wind and find that the absolute value of wind does not drop in response to higher deployment levels, but the relative value does decline.

Keywords: agent-based modelling; low carbon electricity system; investment decisions; heterogeneous agents; value factor of wind (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2021
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