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Business case uncertainty of power plants in future energy systems with wind power

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  • Brouwer, Anne Sjoerd
  • van den Broek, Machteld
  • Özdemir, Özge
  • Koutstaal, Paul
  • Faaij, André

Abstract

The European power sector is transforming due to climate policies and an increased deployment of intermittent RES. The sector will require thermal power plants for the decades to come, but their business cases are (negatively) affected by this transformation. This study presents a novel tool to quantify the effect of policy, price and project-related uncertainties on power plant business cases. This tool can support policymakers in stimulating necessary investments in new thermal generation capacity. We find that these investments are currently unsound (power plants recoup on average –12% to 59% of their initial investment). Future climate policy, i.e. the CO2 price, has a very strong impact on business cases (affects the profitability by 5–40%-points). The impact of the deployment of wind power is average (2–8%-point difference between 10% and 21% wind penetration). Variations in annual wind power production barely affect the profitability (variation of ±1%-point). To stimulate new investments, policymakers should first decrease the uncertainty in business cases caused by policy. Durable climate policy is especially important. Also, policies to increase the profits of thermal power plants should be carefully considered and implemented. This combined approach will reduce the revenue gap that needs to be bridged by supportive policies.

Suggested Citation

  • Brouwer, Anne Sjoerd & van den Broek, Machteld & Özdemir, Özge & Koutstaal, Paul & Faaij, André, 2016. "Business case uncertainty of power plants in future energy systems with wind power," Energy Policy, Elsevier, vol. 89(C), pages 237-256.
    • Handle: RePEc:eee:enepol:v:89:y:2016:i:c:p:237-256
    DOI: 10.1016/j.enpol.2015.11.022
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    2. Yuan, Meng & Zhang, Haoran & Wang, Bohong & Huang, Liqiao & Fang, Kai & Liang, Yongtu, 2020. "Downstream oil supply security in China: Policy implications from quantifying the impact of oil import disruption," Energy Policy, Elsevier, vol. 136(C).
    3. Dragomir, George & Șerban, Alexandru & Năstase, Gabriel & Brezeanu, Alin Ionuț, 2016. "Wind energy in Romania: A review from 2009 to 2016," Renewable and Sustainable Energy Reviews, Elsevier, vol. 64(C), pages 129-143.
    4. Theo, Wai Lip & Lim, Jeng Shiun & Ho, Wai Shin & Hashim, Haslenda & Lee, Chew Tin, 2017. "Review of distributed generation (DG) system planning and optimisation techniques: Comparison of numerical and mathematical modelling methods," Renewable and Sustainable Energy Reviews, Elsevier, vol. 67(C), pages 531-573.
    5. Bamooeifard, Alireza, 2020. "Future studies in Iran development plans for wind power, a system dynamics modeling approach," Renewable Energy, Elsevier, vol. 162(C), pages 1054-1064.
    6. Xu, Xinkuo & Guan, Chengmei & Jin, Jiayu, 2018. "Valuing the carbon assets of distributed photovoltaic generation in China," Energy Policy, Elsevier, vol. 121(C), pages 374-382.
    7. Mills, Andrew D. & Levin, Todd & Wiser, Ryan & Seel, Joachim & Botterud, Audun, 2020. "Impacts of variable renewable energy on wholesale markets and generating assets in the United States: A review of expectations and evidence," Renewable and Sustainable Energy Reviews, Elsevier, vol. 120(C).
    8. Zappa, William & Junginger, Martin & van den Broek, Machteld, 2021. "Can liberalised electricity markets support decarbonised portfolios in line with the Paris Agreement? A case study of Central Western Europe," Energy Policy, Elsevier, vol. 149(C).

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