Can wholesale electricity prices support “subsidy-free” generation investment in Europe?

Chi Kong Chyong, Michael Pollitt and Reuben Cruise

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: Using a Pan-European electricity dispatch model we find that with higher variable renewable energy (VRE) production wholesale power prices may no longer serve as a long-run signal for generation investment in 2025. If wind and solar are to be self-financing by 2025 under the current European market design, they would need to be operating in circumstances which combine lower capital cost with higher fossil fuel and/or carbon prices. In the absence of these conditions, long term subsidy mechanisms would need to continue in order to meet European renewable electricity targets. More VRE production will exacerbate the ‘missing money’ problem for conventional generation. Thus, closures of unprofitable fossil fuel generation would sharpen and increase energy-only prices but would put more pressure on ancillary services markets to support system stability. Thus, the question of the need for a market redesign to let the market guide investments in both renewables and conventional generation would seem to remain.

Keywords: electricity market design; electricity regulation; wind energy; solar energy; electricity generation investment; ancillary services; capacity renumeration mechanisms; energy-only prices (search for similar items in EconPapers)
JEL-codes: C61 D47 L51 L94 L98 Q41 Q48 (search for similar items in EconPapers)
Date: 2019-06-20
New Economics Papers: this item is included in nep-ene and nep-reg
Note: mgp20
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.econ.cam.ac.uk/sites/default/files/pub ... pe-pdfs/cwpe1955.pdf

Related works:
Working Paper: Can wholesale electricity prices support "subsidy-free" generation investment in Europe? (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1955

Access Statistics for this paper

More papers in Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge
Bibliographic data for series maintained by Jake Dyer ().