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Carbon price instead of support schemes : Windpower investments by the electricity markets

Author

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  • Dominique Finon

    (CIRED - centre international de recherche sur l'environnement et le développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

  • Tanguy Janssen
  • Marie Petitet

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.

Suggested Citation

  • Dominique Finon & Tanguy Janssen & Marie Petitet, 2015. "Carbon price instead of support schemes : Windpower investments by the electricity markets," CIRED Working Papers hal-01108944, HAL.
    • Handle: RePEc:hal:ciredw:hal-01108944
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    Cited by:

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    2. Shirizadeh, Behrang & Quirion, Philippe, 2021. "Low-carbon options for the French power sector: What role for renewables, nuclear energy and carbon capture and storage?," Energy Economics, Elsevier, vol. 95(C).
    3. Choo, Hyunwoong & Kim, Yong-Gun & Kim, Dongwoo, 2024. "Power sector carbon reduction review for South Korea in 2030," Renewable and Sustainable Energy Reviews, Elsevier, vol. 196(C).
    4. Romano, Teresa & Fumagalli, Elena, 2018. "Greening the power generation sector: Understanding the role of uncertainty," Renewable and Sustainable Energy Reviews, Elsevier, vol. 91(C), pages 272-286.
    5. Perrier, Quentin, 2017. "The French Nuclear Bet," ESP: Energy Scenarios and Policy 256058, Fondazione Eni Enrico Mattei (FEEM).
    6. Lebeau, Alexis & Petitet, Marie & Quemin, Simon & Saguan, Marcelo, 2024. "Long-term issues with the Energy-Only Market design in the context of deep decarbonization," Energy Economics, Elsevier, vol. 132(C).
    7. Dianat, Fateme & Khodakarami, Vahid & Hosseini, Seyed-Hossein & Shakouri G, Hamed, 2022. "Combining game theory concepts and system dynamics for evaluating renewable electricity development in fossil-fuel-rich countries in the Middle East and North Africa," Renewable Energy, Elsevier, vol. 190(C), pages 805-821.
    8. Quentin Perrier, 2017. "The French nuclear bet," CIRED Working Papers halshs-01487296, HAL.
    9. Ruhnau, Oliver, 2022. "How flexible electricity demand stabilizes wind and solar market values: The case of hydrogen electrolyzers," Applied Energy, Elsevier, vol. 307(C).
    10. Petitet, Marie & Finon, Dominique & Janssen, Tanguy, 2017. "Capacity adequacy in power markets facing energy transition: A comparison of scarcity pricing and capacity mechanism," Energy Policy, Elsevier, vol. 103(C), pages 30-46.
    11. Fraunholz, Christoph & Miskiw, Kim K. & Kraft, Emil & Fichtner, Wolf & Weber, Christoph, 2021. "On the role of risk aversion and market design in capacity expansion planning," Working Paper Series in Production and Energy 62, Karlsruhe Institute of Technology (KIT), Institute for Industrial Production (IIP).
    12. Romeiro, Diogo Lisbona & Almeida, Edmar Luiz Fagundes de & Losekann, Luciano, 2020. "Systemic value of electricity sources – What we can learn from the Brazilian experience?," Energy Policy, Elsevier, vol. 138(C).
    13. Perrier, Quentin, 2018. "The second French nuclear bet," Energy Economics, Elsevier, vol. 74(C), pages 858-877.
    14. Ruhnau, Oliver, 2020. "Market-based renewables: How flexible hydrogen electrolyzers stabilize wind and solar market values," EconStor Preprints 227075, ZBW - Leibniz Information Centre for Economics.

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