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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

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    1. repec:dau:papers:123456789/11199 is not listed on IDEAS
    2. Menanteau, Philippe & Finon, Dominique & Lamy, Marie-Laure, 2003. "Prices versus quantities: choosing policies for promoting the development of renewable energy," Energy Policy, Elsevier, vol. 31(8), pages 799-812, June.
    3. 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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