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

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  • Marie Petitet
  • Dominique Finon
  • Tanguy Janssen

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.

Suggested Citation

  • Marie Petitet & Dominique Finon & Tanguy Janssen, 2016. "Carbon Price instead of Support Schemes: Wind Power Investments by the Electricity Market," The Energy Journal, , vol. 37(4), pages 109-140, October.
    • Handle: RePEc:sae:enejou:v:37:y:2016:i:4:p:109-140
    DOI: 10.5547/01956574.37.4.mpet
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    References listed on IDEAS

    as
    1. Lion Hirth, 2013. "The Market Value of Variable Renewables. The Effect of Solar and Wind Power Variability on their Relative Price," RSCAS Working Papers 2013/36, European University Institute.
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    5. Hirth, Lion, 2013. "The market value of variable renewables," Energy Economics, Elsevier, vol. 38(C), pages 218-236.
    6. Roques, Fabien A. & Newbery, David M. & Nuttall, William J., 2008. "Fuel mix diversification incentives in liberalized electricity markets: A Mean-Variance Portfolio theory approach," Energy Economics, Elsevier, vol. 30(4), pages 1831-1849, July.
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    Cited by:

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    • F0 - International Economics - - General

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