Carbon Price instead of Support Schemes: Wind Power Investments by the Electricity Market

Marie Petitet, Dominique Finon and Tanguy Janssen

The Energy Journal, 2016, vol. 37, issue 4, 109-140

Abstract: This paper studies wind power development within electricity markets with a significant carbon price as the sole incentive. Simulation of electricity market and investment decisions by System Dynamics modelling is used to trace the evolution of the electricity generation mix over a 20-year period from an initially thermal system. A range of carbon prices is tested to determine the value above which market-driven development of wind power becomes economically possible.This requires not only economic competitiveness in terms of cost-price, but also profitability versus traditional fossil-fuel technologies. Results stress that wind power is profitable for investors only if the carbon price is significantly higher than the price required for making wind power MWh’s cost-price competitive on the basis of levelized costs. In this context, the market-driven development of wind power seems only possible if there is a strong commitment to climate policy, reflected in a stable and high carbon price. Moreover, marketdriven development of wind power becomes more challenging if nuclear is part of investment options.

Keywords: Electricity market; Renewables; Investment; Carbon price; System; dynamics modelling (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:37:y:2016:i:4:p:109-140

DOI: 10.5547/01956574.37.4.mpet

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