CARBON PRICE INSTEAD OF SUPPORT SCHEMES: WIND POWER INVESTMENTS BY THE ELECTRICITY MARKET

15-12-2014 -  Marie PETITET, Dominique FINON, Tanguy JANSSEN

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Key words: electricity generation investments, wind power, system dynamics.

Acknowledgements: This paper has benefited from the support of the Chaire European Electricity Markets of the Paris Dauphine Foundation, supported by RTE, EDF, EPEX Spot and the UFE.

Disclaimer: The views and opinions expressed in this Working Paper are those of the authors and do not necessarily reflect neither those of the partners of the CEEM, nor the official policy or position of RTE (Réseau de transport d'électricité).


ABSTRACT
In this paper we study the development of wind power by the electricity market without any usual support scheme which is aimed at subsidizing non mature renewables, with the sole incentive of a significant carbon price. Long term electricity market and investment decisions simulation by system dynamics modelling is used to trace the electricity generation mix evolution over a 20-year period in a pure thermal system. A range of stable carbon price, as a tax could be, is tested in order to determine the value above which wind power development by market forces becomes economically possible. Not only economic competitiveness in terms of cost price, but also profitability against traditional fossil fuel technologies are necessary for a market-driven development of wind power. Results stress that wind power is really profitable for investors only if the carbon price is very significantly higher than the price required for making wind power MWh's cost price competitive with CCGT and coal-fired plants on the simplistic 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 by the preference for a stable and high carbon price rather than a fuzzy price of an emission trading scheme. Besides, results show that market-driven development of wind power would require a sky-rocketing carbon price if the initial technology mix includes a share of nuclear plants even with a moratorium on new nuclear development.

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