Title: More Competition: Threat or Chance to Financing Renewable Electricity?
Citation: ENERGY POLICY vol. 36 no. 4 p. 1436-1447
Publication Year: 2008
JRC N°: JRC36479
ISSN: 0301-4215
URI: http://publications.jrc.ec.europa.eu/repository/handle/JRC36479
DOI: 10.1016/j.enpol.2007.12.020
Type: Articles in periodicals and books
Abstract: ABSTRACT: In this paper a non-linear investment model for the European electricity market is introduced. The model is designed in the Renewable Energy Unit of the European Commission DG JRC for an inter-temporal optimisation of the European electricity market. It uses the concept of probabilities for measuring risks, and differentiated cost data for a reduced set of 19 available power technologies. This tool was constructed to examine the effects of different policy measures and market developments on the investment decisions determining the composition of the electricity generation portfolio. The paper focuses on the preconditions of the penetration of the renewable electricity generation. Two main aspects are analysed. First, it is tested whether increased market liberalisation resulting in higher competition – modelled through decreased return expectations in the sector (ROI) – would positively or negatively impact on the renewables share. The results show, that the policy of increased market opening can result in a "greener" electricity generation portfolio. This indicates that the policies of market opening and renewables are reinforcing, significant synergy effects exist. An additional aspect, the present subsidisation level of photovoltaics (PV) is also analysed. The aim of the study was to understand whether a cost efficient electricity generation portfolio would contain adequate renewable energy sources to meet the established environmental commitments. Our projection is that -with the more stringent competition the market opening brings about- the prevailing high expected rate of return will be reduced and the model showed that this change has a critical effect on the resulting electricity generation mix. In addition the analysis considered the present support policy of feed in tariff for PV as a transitional tool employed to achieve the cost reduction potential of the technology amid the more competitive financing options. The paper also analyses economic frame conditions and analyse the effects of market distortions which are present in the energy and electricity markets. The model used is capable to show the effects the different input parameters on the generation portfolio through simultaneous changes in investment decisions and technological development.
JRC Directorate:Sustainable Resources

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